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Topic 5: 3 Steps to Identify A Winning Business
There
are so many businesses out there!
How do we separate the good businesses from the others? In some sense,
businesses that are listed are considered ‘good’,
otherwise, it is impossible
to be listed. What we are looking for are outstanding businesses.
And what makes a business outstanding?
Again, let us start form basics.
The Purpose Of Business: All businesses are in business to provide either a product or a service. And these products and services are sold to consumers who pay money for it.
The Perfect Business: In simple sense, if there is only one company in the world providing a product that people need and want, say clothes, wouldn’t it be an outstanding business? Of course it is. And wouldn’t its owners/ shareholders be rich because this business will continue to generate more and more profits year after year? Yes!
The Real World: But in the real world, there is virtually no listed Monopoly, which is the one such company we just described. Whenever there is a good profitable business idea, rivals will appear to take a slice of the market pie.
The Outstanding Business: In every industry, there are many companies set up to take a slice of the market pie. We are therefore looking for the market leader. The winning horse within the market.
And here comes the million dollar question: How Do We Identify The Winning Horse?
There are 3 basic components:
1st : Does the Business have a Strong Business Model – A Strong Competitive Advantage over others?
2nd : Does it have good track records
3rd : Does it have strong ethical management
Not every business can survive the fast pace corporate world, so these criteria are important.
Today it is an overview of the way we assess a business, we will go in depth into each in the next part of the course.
And what makes a business outstanding?
Again, let us start form basics.
The Purpose Of Business: All businesses are in business to provide either a product or a service. And these products and services are sold to consumers who pay money for it.
The Perfect Business: In simple sense, if there is only one company in the world providing a product that people need and want, say clothes, wouldn’t it be an outstanding business? Of course it is. And wouldn’t its owners/ shareholders be rich because this business will continue to generate more and more profits year after year? Yes!
The Real World: But in the real world, there is virtually no listed Monopoly, which is the one such company we just described. Whenever there is a good profitable business idea, rivals will appear to take a slice of the market pie.
The Outstanding Business: In every industry, there are many companies set up to take a slice of the market pie. We are therefore looking for the market leader. The winning horse within the market.
And here comes the million dollar question: How Do We Identify The Winning Horse?
There are 3 basic components:
1st : Does the Business have a Strong Business Model – A Strong Competitive Advantage over others?
2nd : Does it have good track records
3rd : Does it have strong ethical management
Not every business can survive the fast pace corporate world, so these criteria are important.
Today it is an overview of the way we assess a business, we will go in depth into each in the next part of the course.
Topic 1: Welcome to the World of Investing
Topic 2: The Destructive Power of Compounding
Topic 3: Investing is RISKY?
Topic 4: Basic Lesson of Value Investing
Topic 5: 3 Steps to Identify A Winning Business
Topic 6: Getting Competitive Advantage
Topic 7: Understanding Financial Ratio
Topic 8: Pushing your Education further