Scaling Laws in Biology and Other Complex Systems & the Read-through for Investing

It seems the whole universe is designed based on the principle of economy of scale, from metabolic rates, to vascular systems, cancer growth, aging, mortality, etc. Those are log (x) correlated (<1.00) - metabolic rates, for instance, stand at 0.75. When it comes to cities, economies of scale still apply. Examples are less paved roads and gas stations per capita. Those are super-linear correlated (e(x) or >1.00) at 1.15 on average.

The question which pops out thus is "Is our system sustainable?!". Society and companies have to innovate in a regular, but accelerated, fashion. Clearly this isn't sustainable, at least not in the required pace for the long term. This is straightforwardly applied to the technology sector and that's why disruptive innovation exists. The curious part is that the below speech took place at Google!

But what about Coca-Cola company? What make those companies "moats", as Buffett would put it, large enough for generations to see? In hindsight it would be an easier call, but what can we look for when trying to identify ex ante such a great 100-year business? Food for thought.

Yvon Chouinard - Patagonia Founder- Speech at UCSB

Financial analysts usually use sophisticated terms - almost another dialect - to describe and analyze businesses. The thing is: in the real world stuff is simpler. The world is made by givers, doers and shakers, not takers.  

Besides, when analyzing a business it's important to consider the open-ended story with "infinite duration" (using financial wizards' terms). Sustainability is a key word, not on the environmental aspect solely, but one should understand if the company's culture is sustainable and what are its drivers - to mention one aspect only. Another buzz-wordy question would be: Is the moat widening or at least maintaining its original width?

His speech is easy to watch due to his sense of humor and amazing story. Main takeaways were: (i) despite his amazing trajectory, most things happened naturally or by accident; (ii) common values among people is key; (iii) sustainability concept came from a financial crisis, not from environmental causes - later on they made the term widespread in different spectrums; (iv) let people free to create and express themselves; (v) do not grow just for getting bigger - grow if it's the best option for all your stakeholders.


Below follows his two published books:

• The Responsible Company: What we've Learned in Patagonia's First 40 years

http://www.amazon.com/The-Responsible-Company-Learned-Patagonias/dp/0980122783/ref=reg_hu-rd_add_1_dp

• Let My People Go Surfing: The Education of A Reluctant Businessman

http://www.amazon.com/Let-People-Surfing-Education-Businessman/dp/0143037838/ref=reg_hu-rd_dp_img