The ideal portfolio, replicating the rationale of cash equilibrium explained above, suggests that a firm should not have any businesses in low-growth markets with small relative market shares (dogs). Instead, a firm should use the cash generated by businesses in low-growth markets with high relative market shares (cash cows) to invest in the question marks, the stars being self-sufficient.
The assumption is that this investment, and therefore the allocation of resources across businesses, will enable businesses in high-growth markets to build their share and become stars. As the market matures and the growth rate slows down, the stars automatically become cash cows.
Therefore, the “ideal” portfolio creates a dynamic process, which is self-perpetuating as long as there are new question marks to take over in the cycle and replace the once cash-generating products.
It should be pointed out at this point that the relationships between market growth and cash usage and between relative market share and cash generation are not without controversy. For instance, it is not clear that low-growth markets generate cash, even when the business is in a high relative market share position. Low-growth markets are typically markets in the mature stage of the product life cycle. They are characterized by a high level of competition, escalation of marketing expenditures and possibly price wars. All these factors will usually lower profit margin.