On a podcast with William Green, Guy Spier explains the concept of “Economic High Ground”

Let’s use a real estate analogy to explain this concept. It is better to own A grade real estate in the city center than to own a warehouse on the edge of town.

With A grade real estate, the price goes up in strong markets and the price goes down less in weak markets. It’s the exact opposite when it comes to real estate on the edge of town, which goes down in price rapidly in weak markets.

The average McDonalds franchise makes approximately $1.5million in revenue per year. There is however a McDonalds store in Times Square which makes $7 million. So in tough times this store will evidently suffer less.

When it comes to picking stocks, we should use this “economic high ground” thinking. We should pick businesses that mimic A grade city centre real estate, businesses that can not be easily displaced and businesses that can weather through through tough times.

Guy Spier thinks that retail businesses have no economic high ground because at the end of the day you just matching the perception of what the consumer wants by selling apparel.However rail networks do. A wide array of cargo can be transported via rail thus rail networks are more likely to see themselves though difficult times.