6 The Value Chain


In this lecture we look at value chains. When I first approach a stock, I have some idea as to why I think it’s going to go up (or down). As I study the industry and company to evaluate the hypothesis, I always look at customers and suppliers. It’s surprising how often I have found that my thesis is correct but that the point of greatest opportunity lies not in the obvious stock, but in one of the customers or suppliers. The stockmarket often discounts the second derivative, which means for example that oil service companies’ stocks are more geared to the oil price than oil producers. This is a concept often overlooked by private investors.

Doing the analysis of the position of customers and suppliers gives you valuable insight into the opportunities for the company.