Why I Love Investing in Unfair Fights
April 16, 2024
10 min read
Why I Love Investing in Unfair Fights
Market leaders can leverage their dominance — based on a durable competitive advantage and best-in-class operational efficiency — to push weaker competitors out of the market and gain further market share. All in repeat mode. The result? A flywheel effect leading to perpetual growth machines. The extended arvy analysis of Thierry Borgeat's original in The Market NZZ.
In 30 seconds — the core thesis
- Life is unfair — and that's the opportunity. Investors who find companies that combine durable competitive advantages with best-in-class operational efficiency are invested on the right side of an unequal fight. Unfair not to the company you hold — unfair to its weaker competitors.
- The flywheel turns in three steps: moat (margins, pricing power, reinvested capital) → market-share gains (against weaker, not stronger competitors) → compound interest (the «pièce de résistance»). Conventional valuation methods fail — academics call it the «quality anomaly».
- The math is brutal. 18% ROIC over 20 years turns CHF 100 into CHF 2,739. 6% ROIC turns the same CHF 100 into CHF 321. A factor of 8.5. This is why seemingly «expensive» quality market leaders remain structurally undervalued over the long run.
The original analysis — the opening
The stock market knows the price of everything, and the value of nothing.
— Phil Fisher, American investor (1907–2004), after Oscar Wilde
Life is unfair. That is a given. But amidst the inequities of life, there is one lesson Thierry has learned from difficult times: when you find the right thing to do and the right people to work with, invest deeply. All returns in life — wealth, relationships, knowledge — come from compound interest.
As a passionate bottom-up stock picker, Thierry looks deliberately for companies that play these long-term games while engaging in an unfair fight. Unfair not for the company he wants to own — unfair for its competitors.
→ Read the full analysis on The Market by NZZ
Chart 1: The rise of market concentration by market leaders
Source: Census Bureau, Sparkline
01The unfair advantage: Moat + capital allocation
What never ceases to amaze: most investors focus daily on valuations, catalysts, and forecasts — and neglect the fundamental question of whether they want to own a good company in the first place.
It starts with two characteristics: a sustainable competitive advantage — a moat — and adept capital allocation by management. This «Good Story», as we call it at arvy, forms the foundation on which everything else is built. And then the crucial part: such companies often thrive in monopolies, duopolies, oligopolies, or as clear market leaders in fragmented markets.
Why these market structures specifically
In a perfectly competitive market, margins get eaten away. In monopolies, duopolies, and oligopolies, the opposite is true — a few dominant players can hold pricing power, defend margins, and reinvest cash flows at high returns. In fragmented markets, the market leader becomes the unfair opponent to thousands of small competitors simply through operational efficiency.
02The flywheel — three forces of momentum
How do market leaders exploit their dominance over time? They build their business model like a flywheel. Once in motion, it spins with increasing momentum. In practice, three forces turn the flywheel:
The Flywheel Effect
01
Moat
→
02
Market-share gains
→
03
Compound interest
↻ Repeat mode
1. Their moat. The company can fend off competition and has best-in-class operational efficiency. This translates into high margins, pricing power, strong cash flows, and reinvestment of capital at high returns. Fun fact: many are family-owned or still founder-led.
2. Market-share gains. They cannot beat every competitor — so the market leader targets weaker competitors and avoids stronger ones. They use their unfair advantage deliberately. This continuous fight «not at eye level» leads to a constant strengthening of dominance.
3. The compound interest effect. The pièce de résistance. Because these businesses are so high-quality, gaining share and reinvesting at high returns, their long-term impact overwhelms market participants. Wall Street focuses on the next twelve months — and neglects the magic of compounding. The consequence: market leaders are essentially priced reasonably, even if it does not look that way in the present. Conventional valuation methods simply fail. Academics call this the «quality anomaly».
Why Rollins is the textbook example
Rollins, US pest control, leverages dominance against weaker competitors. Gains market share. Improved profitability generates more cash flow. That gets reinvested at high returns — further extending operational efficiency. Enables further market-share gains. And the whole thing repeats. That is the flywheel that turns a market leader into a perpetual growth machine.
03Five real-world examples — arvy portfolio in April 2024
Five concrete companies held in the arvy portfolio at the time of the original article (April 2024), each operating with the flywheel strategy:
Copart
Online vehicle auctions
40%US market share
20%ROIC (5yr avg.)
Family-ownedWide moat
AutoZone
Auto-parts retail
25%with O'Reilly (duopoly)
30%ROIC (5yr avg.)
Consolidationfrom a fragmented market
Rollins
Pest control
13%US market share
20%ROIC (5yr avg.)
vs. 20,000small competitors
Wolters Kluwer & RELX
Business information
High teensROIC (5yr avg.)
Wide moatthrough scale
Clarivatebelow cost of capital
Old Dominion Freight Line
LTL trucking
2 → 12%market share (20 years)
23%ROIC (5yr avg.)
Yellow Corp.recently bankrupt
Chart 2: ODFL market share 2002–2022 — the flywheel in real time
Old Dominion Freight Line increased its US market share from 2.9% to 11.8% between 2002 and 2022 — four times bigger in two decades. Second-largest competitor Yellow Corp. filed for bankruptcy in 2023.
Source: ODFL Annual Report 2022, Census Bureau, Sparkline
Historical context of the positions
The five companies named here were arvy portfolio holdings in April 2024. The underlying logic — moat + market-share gains + high ROIC in unequal fights — is the timeless selection principle, independent of which specific position is held at which point in time. The current portfolio allocation, including documented position changes (e.g. arvy's complete exit from the software sector in Q1 2026), can be found in the arvy Q1 2026 quarterly report.
The cherry on top is when such companies are additionally supported by structural growth trends in their sector. That amplifies growth rates and ultimately the compound effect. The telecom sector on the other hand — few players in a mature market, services that lead to a «race to the bottom» price war — is not of interest. ODFL, by contrast, benefits from the long-term e-commerce trend, bringing additional volume into LTL trucking.
04Time-horizon arbitrage — the patient player's game
Once we know fundamentals, market type, and industry dynamics, the most important factor comes into play: time in the market. The longer you can extend the time horizon, the less competitive the game becomes. Most of the world engages in a very short time frame.
Clickbait headlines, news-driven noise, analyst upgrades and downgrades: all meaningless in the long run, and much more for entertainment purposes. The catch is that true time-horizon arbitrage lies beyond what most investors can stomach. It is not in quarterly performance — but in years, if not decades.
The statistics are unambiguous
Real total-market returns 1871–2022: at a one-day holding period, the share of positive periods is just over 50%. At 10 years, well above 90%. At 20+ years, practically 100%. That's the textbook argument for time-horizon arbitrage — compounding needs time to unfold its magic, and almost no one gives it that time.
A large part of the success of the greatest investors lies in their ability to engage in time-horizon arbitrage: buying assets with long-term value that are undervalued by the market in the short term. These companies can then benefit from the magic of compound interest at its best.
05The math of the 18% ROIC gap
Charlie Munger nailed the core of the compounding principle: long-term, a stock cannot earn a much better return than the underlying business. If the business earns 6% ROIC over 40 years and you hold it for 40 years, you won't make much different than 6% annually — even if you originally bought it at a huge discount. Conversely, if a business earns 18% ROIC over 20 or 30 years, even at an expensive-looking price, you'll end up with one hell of a result.
A concrete example makes this tangible:
CHF 100 invested — 20 years later
Company A
18% ROIC
over 20 years
↓
CHF 2,739
27× capital multiplier
Company B
6% ROIC
over 20 years
↓
CHF 321
3× capital multiplier
CHF 100 becomes 27 times as much at 18% annual return. At 6%, only 3 times as much. Factor 8.5 in 20 years. How can the market deal with such a difference in returns in the short term? It simply cannot. Source: arvy, own calculations.
That is the mathematical core of the quality anomaly. When a market leader's flywheel produces ROICs in the high teens over decades while the market looks at the next twelve months, the long-term price must rise dramatically — independent of whether the entry P/E looks «expensive» or «cheap».
Why quality companies persistently defend their advantage is the subject of Thierry's flagship Good Story & Good Chart analysis. Why market leaders at new highs are opportunities rather than warnings is covered in The Great Paradox. And how valuation discipline protects against concentrated mega-cap excess is shown in The Margin of Safety.
06The best S&P stocks of the last 30 years — what they have in common
Thierry searched like a Boy Scout for clues — in stock-market history and in today's markets. The analysis of the S&P 500's top performers over the last 30 years (April 1994 – March 2024) reveals striking shared characteristics:
- More than half have a wide moat
- Most are market leaders in duopolies, oligopolies, or have high share in fragmented markets
- Many are founder-led or family-owned
- All have top-notch operational efficiency and reinvest capital at high returns
- Many operate with very low leverage
Source: Creative Planning, Charlie Bilello, YCharts
This is no coincidence — it is the signature of the flywheel effect. The winners of the last 30 years were not the cheapest stocks, not the most volatile, not the trendiest. They were structurally superior companies in favorable market structures, playing their unfair advantage consistently over decades.
The beauty of investing
We can take the unfair advantage of better-positioned companies for ourselves — by investing in them and ignoring the weaker competitors. We do not have to be better than the market. We only have to pick the side of the table where the probabilities are positive. That is time-horizon arbitrage in action.
07What to check now
1. Market structure of your core positions. Does the company operate in a monopoly, duopoly, oligopoly, or fragmented market with clear leadership? Or in a competitive «race to the bottom»? Market structure is the first filter.
2. ROIC over the last 5–10 years. Is ROIC sustainably well above cost of capital? Ideally in the high teens and higher? A sustainable high-ROIC company is the heart of the quality anomaly.
3. Family-owned or founder-led. Notably many quality compounders are family- or founder-led. That's no accident — skin in the game and long-term orientation correlate with structural dominance.
4. Structural growth tailwinds in the sector. E-commerce (ODFL, Copart), aging populations (healthcare), digitization (Wolters Kluwer, RELX), electrification. The flywheel spins faster when the sector itself is growing.
5. Time-horizon test. Can you hold a good stock for 10–20 years, even if it falls 30–40% in between? If not, you're playing the wrong game. Time-horizon arbitrage only works if you actually have time.
What disciplined investors do
They invest deliberately on the side of the unfair advantage — where the market leader dominates weaker competitors. They accept that quality valuations look «expensive» and are still undervalued, because the market does not price in compounding. They buy and hold for decades. They ignore quarterly noise. They understand that a market leader's true value does not materialize in the next twelve months — but in twenty years.
08Frequently asked questions
What exactly is a «moat»?
A structural feature that prevents competitors from entering or penetrating the market. Forms: network effects (Visa, Mastercard), switching costs (enterprise software), scale (Copart, Walmart), brands (Hermès, LVMH), IP/patents (pharma), regulatory barriers (rating agencies). The harder to replicate, the wider the moat — and the longer the flywheel dynamic.
Why does the market ignore the quality anomaly if it's well known?
Because the market is incentivized on short-term performance. Fund managers are measured on 1–3-year performance, not 20-year compounding. Retail investors react to earnings and headlines. The quality anomaly persists because time-horizon arbitrage is structurally hard to implement — not because it's unknown.
Does this mean I should only buy market leaders?
No — the criterion is not «big» but «durably dominant in the right market structure, with high ROIC and adept capital allocation». A small leader in a fragmented niche with 25% ROIC can be a better candidate than a mega-cap in a competitive sector.
How do I value the «quality premium»? When does it get too expensive?
The math shows: an 18% ROIC business can justify a large valuation premium — as long as the ROIC is sustainable. The danger is not «too expensive» in the classical sense, but «ROIC not sustainable». If the market structure tips (new entrant, regulation, technological shift), the picture can turn quickly. That's why moat monitoring is never finished.
Read next — the thematic anchors of this analysis
Price vs. value — going all the way
The stock market knows the price of everything and the value of nothing. This Oscar Wilde paraphrase, which Phil Fisher made his credo, captures the essence of the unfair-fight principle. Market price moves with headlines, moods, and catalysts. The value of a market leader moves with the flywheel — slowly, steadily, over decades.
Those who react to price play the wrong game. Those who invest for value exploit the structural inefficiency the market cannot arbitrage away, because the majority of market participants cannot leave the short-term time frame. That is the true time-horizon arbitrage — and it is the only durable edge an individual investor can have.
An 18% ROIC business operating in a duopoly, family-led for generations, consistently reinvesting cash flows at high returns, riding a structural growth trend — that is not a «bargain» in the classic sense. But held for the right duration, it is practically a money-printing machine. And that is what Thierry loves about unfair fights: they are for the shareholder — and against its competitors.
Ultimately, we can only benefit from an unfair fight (the value) if we go all the way and ignore the short-term noise (Wall Street's price chase).
Original written by Thierry Borgeat, Co-Founder of arvy, for The Market by NZZ. The extended arvy version was reviewed by Patrick Rissi, CFA and Florian Jauch, CFA. The portfolio positions named (Copart, AutoZone, Rollins, Wolters Kluwer, RELX, Old Dominion Freight Line) reflect the arvy allocation in April 2024; current positions in the Q1 2026 quarterly report. Sources in the original: Census Bureau, Sparkline, ODFL Annual Report 2022, Creative Planning, Charlie Bilello, YCharts. Last update: April 2026.
Disclaimer: This article is for general educational purposes and does not constitute personal investment advice. arvy is a FINMA-supervised asset manager with a CISA license (Art. 24). Imprint & Legal Notices.
