The Factor of Scale

One of my friend asked me a question - "What have you figured out which a $22 Billion hedge fund have not yet figured out?". This was such a funny question to me. Why?

Here is an analogy- If I go to a casino in Las Vegas with $5 and walk out with $20. It does not mean that I can walk in the casino with $5 million dollars and walk out with $20 millions.

The scale is a huge factor on how the strategy would work for anything. For example - McDonald's v/s A local specialty burger restaurant. McDonald's high scale makes them focus on process and distribution so that they can provide affordable and reasonable burgers. Very profitable. While the local burger restaurant focuses on quality, niche & service catering to executive high end customers. Still very profitable.

McDonald's net income grew 3.4% in 2016 while the local burger restaurant could grow by 20% in a year. This does not mean that the local burger restaurant has figured out something which McDonald's have not. It purely means the strategy and focus of the 2 companies are totally different.

Imagine McDonald's trying to sell high end steak. It would be hard to sustain the quality and service of the local burger restaurant.

Similarly, Saroj Investments have a unique value proposition and strategy(and lot higher gains in %) that differs from a $22 billion hedge fund. We make a lot of algorithms work in our favor which a $22 billion hedge fund might have difficulty in making it profitable.

If you have questions, email me at Rohit@AskSaroj.com