Investing/Trading
- The world of investing and trading isn’t about gambling your money and
speculating uncertainty. It is a way of finding great prospects which provide
value to it’s clients/customers and something of value to you. In order to
understand what investing is all about, think about “trade-offs” and
“opportunity costs”. Understanding those terms goes a long way into picking
great trades and long positions.
- There are many ways to understand which picks are the best, such as –
1) Trade-offs and Opportunity costs
2) Moats or trade secrets
3) The Numbers game
Trade offs and OP costs – OP cost is what one must give up by picking a choice and
trade offs are obviously the advantages of those choices. These factors are highly
advantageous for the long term. Lets take an instance which supports trade off and op
costs in picking great longs.
Eg – There are more trade-offs in cheap food products in cities were the per capita
income is 50% lesser than the capital city. Therefore, public companies which serve
these trade-offs are long term favourites, especially in a prospering economy. Also a
special factor is , in a prospering economy, these companies are likely to adopt
forward planning business models to adapt and survive leading to serving cheap
trade-offs to better produced premium products.
Stock examples – Nestle – Produces great trade-off options for middle class house
holds in prospering economies.
Walmart – Retails products which serve as trade-offs for not only families, but also for
companies by helping reduce their marketing and selling costs, meaning Walmart
sells for them while they produce cheap and sell at profitable wholesale margins.
Overtime their stocks pay dividends and compound at an increased rate as the
economy moves forward.
Moats or trade secrets – Moats are advantages businesses have over their rivals,
either by having built trust over time with prevailing trade offs and by providing extra
trade offs which is preferred by consumers. These factors help increase chances of
outperforming other long stocks. Certain factors can also be that their tradeoffs
support households or other clients during recessions, therefore keeping their income
and balance sheets active.
Numbers game – By reviewing their reports, one can determine the direction the
company is going in. Increasing equity and cash flow can pretty much set the tone for
a great long stock.
Factors of well performing stocks –
- Sustainability – Large equity/Large treasury shares & tradeable
securities/Increasing current assets and decreasing long term liabilities/large
reserve cash for crisis.
- Forward planned business model – Adapting to latest trends/supply chain
efficiency/economies of scale /inventory management/ adaptive engagement.
