V NA recent visit to the Boston Science Museum and Sturbridge Village brought back an important theme. Dell has reduced the number of parts and suppliers and inventory in its products by a factor of 10 in last five years, and keeps just two hours inventory on hand in Asian factories. The replacement of a screw with a clip-on saves one second a screw. The fewer parts you have, the more you can act as a platform for profit for your company rather than a carrier shell for others to stand on your shoulders. The amount of bread a farmer can make with 40 hours of labor these days is more than 60x what is was in 1820. The reason is increased capital, broadly defined. The main asset in the capital stock is human capital.

All these combine into a price to weight ratio or a price to parts ratio. Looking through the Dow I find high price of typical product to (weight + parts) ratios in Intel, IBM, Microsoft, Verizon, Walt Disney, J and J, Pfizer. I hypothesize that for a standardized group of, say, the 500 companies in the S&P at the end of this year, the companies with the highest ratios will outperform the rest.


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