The Misfits: Acuity Brands (AYI)

The success of a company can endure many years after its first product.

De Lampenist (the lamplighter), James Ensor, 1880, oil on canvas (Royal Museum of Fine Arts Belgium)

A lot of “financial guru” investing advice irks me.

I’m not saying that teaching people how to take control of their finances is terrible or that their overall investing advice does more harm than good. I often find that so much of it pushes investors into a particular type of investing that may not suit them.

One example that immediately comes to mind is those that frequently use this chart from Aswath Damodaran.

Source: Aswath Damodaran, The Compressed Tech Life Cycle: The Managerial Challenge, Dec 15, 2015

I’m not saying that Damodaran is wrong in his analysis. Instead, others use this chart to justify only investing in companies in stages one to three and avoid investing in stages four to five.

Those who cite it often misinterpret this chart: They view businesses as static entities incapable of changing their stripes. It’s similar to the quip about being “the last buggy whip company”. It assumes a collection of people and assets are utterly incapable of foreseeing changes in market demand and will simply roll over and die when the time comes.

The chart above shows the corporate product cycle, not necessarily the corporation's lifecycle. Misinterpreting these two things and assuming the only companies worthy of investment are those in stages one through three is investing malpractice.

The most well known example that disproves the “invest in growth only” mantra is Berkshire Hathaway (NYSE: BRK.B), a company that went from textiles to insurance to consumer staples to utilities to railroads. Honestly, citing Berkshire is a financial writing cop-out because Berkshire is a one-of-one.

So, let’s consider another company that also started in the linen & textiles industry, has changed its stripes many times over, and remains a market-beating investment: Industrial lighting company Acuity Brands (NYSE: AYI).

There are quite a few lessons in this company. So let’s dig in…

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