Positive Dynamic Change Investing
Find growth where industry change creates new winners or revives old ones
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 99%
Positive Dynamic Change Investing searches for opportunity where pressure on an industry is greatest. Its first lens is high-growth change: identify the fastest-growing new product or service, determine which companies lead it, and assess whether incumbents are adapting or being cannibalized. Its second lens is life-cycle change at the distressed end of an industry, where new management, restructuring, innovation, or a fresh market opportunity may restart growth. Investors then test whether the transition is durable and whether fear or uncertainty has caused the market to undervalue the likely beneficiaries. The output is a company-level map of emerging winners, vulnerable incumbents, and credible reacceleration candidates rather than a broad bet on an entire sector.
Origin
Alger Asset Management was founded around this investment philosophy in 1964 and describes it as discovering companies undergoing positive dynamic change.
Core principles
- 01The greatest change creates the greatest opportunity
- 02Fast-growing products can create leaders while cannibalizing incumbents
- 03Declining industries can still contain companies entering a new growth phase
- 04Investor fear around extreme change can cause undervaluation
- 05Durability separates an investable transition from a temporary surge
How to run it
- 1
Map the pressure to change
Identify the technological, economic, demographic, regulatory, or consumer forces reshaping an industry. Focus on changes affecting revenue growth, profits, demand, or competitive structure.
Pro tip Rank changes by likely magnitude and duration.
Watch out Do not treat every news event as a structural transition.
- 2
Find the highest-growth edge
Determine which new product or service is growing fastest within the industry. Identify the companies leading, enabling, or distributing it.
Pro tip Study growth from both the supplier and customer perspectives.
Watch out Rapid percentage growth from a tiny base does not automatically establish durability.
- 3
Trace cannibalization
Identify the products, business models, and incumbents losing demand as the new category expands. Evaluate whether each incumbent can adapt before its economics deteriorate.
Pro tip Follow customer spending as it migrates from the old solution to the new one.
Watch out A historically dominant brand may not retain leadership after a platform transition.
- 4
Scan the declining end
Look for companies in challenged industries that possess new management, restructuring plans, innovation, or another credible reacceleration catalyst.
Pro tip Separate measurable operating change from turnaround rhetoric.
Watch out Low valuation alone is not positive dynamic change.
- 5
Test durability
Assess whether the transition can persist through economic cycles and whether competitive advantages allow a company to capture the resulting growth.
Pro tip Use prior industry transitions to test adoption and substitution assumptions.
Watch out Temporary pandemic or commodity effects can resemble durable growth.
- 6
Compare change with expectations
Determine whether the market price already reflects the opportunity or whether uncertainty and fear have produced undervaluation. Invest only when prospective change is more favorable than embedded expectations.
Pro tip Look for gaps between improving business evidence and still-negative investor narratives.
Watch out A good company can remain a poor investment when expectations are excessive.
In the wild
Music moved from records to tapes, cassettes, CDs, and then digital distribution. Each new medium began as the fastest-growing format and ultimately displaced much of the preceding technology. Companies tied to old distribution or playback systems lost leadership, while Apple, Spotify, and other digital businesses captured the new demand.
→ Mapping the transition distinguishes emerging platform winners from incumbents facing cannibalization.
Bayer became hated and undervalued after acquiring Monsanto near an agricultural-cycle peak and inheriting Roundup litigation. As the unknown liability diminished and agricultural economics improved, its pharmaceutical assets and Monsanto business offered potential for renewed growth.
→ A declining narrative can become an opportunity when specific catalysts create a credible new growth phase.
Common mistakes
Buying growth without tracing displacement
Investors may identify a growing category but miss which incumbent products are being cannibalized or whether their chosen company captures the value.
Confusing cheapness with improvement
A low multiple does not establish positive change. A life-cycle candidate needs a credible catalyst that can restart growth.
Extrapolating temporary demand
Short-lived conditions can make a product appear structurally stronger than it is. Durability must be tested explicitly.
Is it for you?
Best for
It is best for fundamental growth investors comparing potential winners and losers within a changing industry.
Not ideal for
It is not ideal for passive allocation or short-term trading that does not examine company-level adaptation and industry structure.
From the transcript
“what we recognize in our philosophy is the opportunities for investors, in particular fundamental investors are where the change is the greatest.”
“one is where is the highest new growth in an industry.”
“So the industries are companies with potentially new management, new innovation, restructuring, or just new opportunities that can re accelerate and reinvigorate their companies into…”
From the episode
Daniel C. Chung on Probability Theories for Investors
Daniel C. Chung