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Knowing More Than 99% of Investors Means You'll Do Better Than Them
This is the most critical concept you’ll EVER read about on this site… period.It’s critical because I’m going to reveal not only what will allow you to understand and absorb all that I write, but also how you will apply what you learn to successfully identify market opportunities for yourself… which is the most rewarding part of investing.
He’s making it sound a lot easier than it is, I’m sure. It’s not astrophysics or quantum finance, but the process does require some work and bit of learning.
That’s the problem for most of you.
Unfortunately, depending on what industry or career field you are in, you may think it’s impossible or impractical to learn how to value a business… many of you think you either can’t learn the skills, you don’t want to, or you think it’s easier just to listen to me for hot stock tips.
I'm here to tell you to shrug that mentality, and become a freedom fighter of financial wisdom! It's not nearly as hard as it sounds.
I'm here to tell you to shrug that mentality, and become a freedom fighter of financial wisdom! It's not nearly as hard as it sounds.
Get Out of a Knowledge Rut
Firstly, learning is growth, and gaining real knowledge is fulfilling. This knowledge particularly will help you succeed in generating real wealth. And achieving success by your own hand is incredibly satisfying—and liberating.
Not a single skill you can possibly learn in finance will be more critical to your investing success than being able to value a business.
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| The Underminder, from the film, "The Incredibles." |
Let me get philosophical with a quick note on learning. Over the years, a deep body of research been done on the brain. As scientists have long held, the brain is essentially a muscle. Like all other muscles, when it is stretched and exercised, it becomes stronger and more capable of performing above previous expectations. They have found that neural connections deepen most when we try new things and fail, more so than when we repeatedly succeed at doing things we do well already.
Furthermore, the social sciences have determined that all people who have brains fall into one of two learning “mindsets:” fixed or growth.
Fixed mindsets believe that people are either smart, or they are not, that intelligence is set by genetics. They focus on jobs and tasks where they have high likelihood of success, and shun any prospect of failure.
Growth mindsets, however, believe that intelligence is cultured through growth, struggle, and failure. They don’t avoid things that will make them stretch and learn, and seek out opportunities to challenge themselves and grow. They believe that failure just means a higher likelihood of success in the future.
As you imagined, the latter group is highly correlated with greater intelligence, and more importantly, a higher success rate in reaching goals, building businesses, and succeeding overall in their personal and professional endeavors.
I founded this site to cultivate this growth mindset within you, to help you succeed. Hot stock tips have little to do with it.
If you can look past what is essentially the “fluff” of whipsawing investment performance (i.e., arbitrary stock price movement), and learn to gauge the characteristics for a successful business, you’ve developed the one skill you need to pick companies independently and compound your wealth over the long term. This is much easier and less stressful than acting like you have a crystal ball and trying to pick the next direction of the market.
What if you’ve never been in business, or owned a business? How do you develop the insight and intuition about what matters in making a business successful?
There are plenty of examples for great businesses you can use as examples that have steadily increased their value and market share over the years, providing consistent returns to investors and regular profitability. Study what makes these companies successful businesses.
Learn to calculate the intrinsic value of a business. Learn what metrics are important for interpreting financial data in a way that makes sense from a value perspective. It’s this knowledge—business judgment—that will set you apart from the average speculator.
I've written a separate article about a good starting place for companies to invest in. I've listed the greatest companies in the world, which are the most safe places to park your money. But why are they the best place to grow money? What makes them great?
What makes a good business?
Lead innovators in technology: Oracle, Cisco and Apple are all characterized by technological innovation, particularly the fact that they have and continue to provide cutting-edge solutions in hardware, software, and other areas of technology while achieving financial results that continue to trump competitors. The innovators of business are easy to spot for freedom fighters like us.
Unique, unbeatable business models: Wal-mart and McDonalds both have unique competitive advantages in their own sectors which allow them to dominate industries and competitors. Wal-mart’s supply chain model is so efficient, it can deliver products at the lowest cost, while slashing prices to undercut competitors, still managing to maintain its razor-thin margins and provide consistent, reliable return to investors. McDonalds, on the other hand, is a business based not on having the best hamburgers and French fries, but creating them in the same iconic, reliable, and recognizable way across the globe. A hamburger in Beijing tastes the same as it does in America—I know, I’ve tried them both. McDonald’s has the widest reach and most recognized branding of any other fast food chain globally. Realizations such as these, and a knowledge of how to implement them in a wealth-building strategy, come easily to those with a bit of financial wisdom.
Branding: It can hardly be disputed that Apple, Microsoft, and Coca-Cola are some of the most widely-known brands across the globe. It would be an understatement to say that Apple’s unique and innovative products are well-recognized—many consider the company’s products to be an integral part of their personal identity. Microsoft’s operating systems have been dominating the personal computing platform for over two decades, and its software is installed on 95% of PC’s worldwide. Coca-Cola is an iconic brand with a cult-like following and brand loyalty to the point of its consumers admitting addiction to the wide and varied sugary drinks of its worldwide empire.
Smart finances: And finally, the one thing all these businesses all have in common: unmatched financial strength in the form of gushing profitability, cash flow, and reliable dividend payments. When it comes down to it, a company can have a great product, an awesome brand or business, and be a great innovator, but if it manages finances poorly, it’s going to be out of business—a poor investment indeed.
Get started learning, from the beginning if necessary
If you’re ready to do this, you are ahead of 99% of investors, many of which determine their decisions to buy or sell based on where the price range the stock has traded in over the past year.
There's plenty to learn right here at The Village Id-Vestor if you're interested in becoming a freedom fighter of finance. Start from the very beginning, with personal finance basics if you need to, and work your way up to investing and speculation. You won't be disappointed.
Live long and invest,
Jeremiah
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