When I set out to write Equity Investing is easy….i had no clue how many parts it will be. Right now it is a guess. It should be at least 10, if not more.

You have to take a lot of effort to understand how a company makes money. You have to know how the strategy works. You have to know what are the internal strategies that a company is using.

Look at Indigo. In fact look at the airline industry. All airlines buy the same aircraft. Or similar aircraft. They fly to the same airports. They hire people and train them. They all buy oil.

What strategy can you adopt to really make money? Economics? Improving turnaround time? Good training? Customer delight? Good on time performance? charging for many things which was earlier free?

Take a simpler example. If you see a shop you need to know what it takes to fill the shop with things and how it is sold. If you see a restaurant you need to know how many people need to be sitting in it. How many seats, how many items to be ordered, how much time spent on each customer?

What revenue will it generate? what is the margin? how can it be improved? How much pricing power, really. Any particular strength – in retail location advantage can just undo all the other disadvantages. YOU MUST know what is giving the company the edge. If you are a value investor, you should know where is the value, AND how it will be unlocked. Exactly like that you need to know the strategy of the company. If you do now know how the company makes money, you should not invest.

What is the competitive advantage. For Indigo it has to be MARKET SHARE. However, it is still seen as a commodity business. Competitive advantage is when it earns more than the average cost of funds and the marginal cost of funds – and can keep increasing the volumes at decent margins.

Of course like Procter says you need to distinguish between strategy and operational effectiveness. Also operating efficiencies. So for Indigo it may not be strategy, but just operational effectiveness. However, one thing is clear, taking a business from a commodity business to a branded service is not easy.

However, companies like Hdfc have done it in the past. Giving home loans – cannot be an edge can it be? However 130 companies have copied Hdfc in the mortgage business, but the boss still leads.

Hdfc is not just a home loan provider. Remember Hdfc has incubated Hdfc bank, Hdfc life insurance, Hdfc mutual fund, and a bunch of other companies waiting in the wings to do an OFS or IPO.

So what is Hdfc? try answering that question yourself. You will know why it is not fully priced even in this bull run.