Updated: Aug 25, 2021
When we want to invest in stocks, I always tell people to invest in good company, good industry.
What do I mean by that?
Simply put, good company is quite easy to define. It is those company's product that we use, or the service they provide to us, very often on a daily basis.
These companies often have a dominating market shares, and often very profitable.
When we found the company we are interested in, the next thing is to identify it's profit. As I have mentioned before:
"Profit is king! everything else is just icing on the cake."
You can tell me thousands of things about how big this company's growth potential is, at the end of the day, if the company is not profitable, I don't want anything to do with it, period.
This is a new technology company, and they're inventing the next mobile device... When the technology come out, it's going to replace the smart phone! If you don't invest now, you are going to lose the opportunity of a life time.
Hell Fucking no!
As a value investor, we do not invest in a company that is "going" "will" "probably" success.
Get these garbage out of my sight!
We're not going to invest a single penny into what they might become. We want certainty.
We want companies that have been in the industry for years, companies that have battled with competitions, fought with fierce competitors, and most importantly survived and become the top of their field.
We want companies that makes huge profits every year, and preferably bigger profit every year.
A great company is one that have a wide moat around it's castle, and a big army to defend it's castle from attacks or sieges coming from competitions.
We don't want maybes, will be companies that might even make no earnings for the next three years, and we're paying for its research and development.
The worse thing is... they might fail or delay the product launch, and we're paying for those.
Why are we stupid enough to fund start up companies or "maybe" companies when we can pick the best in its industry?
I think my foul language has helped me made my points...
What about good industry?
Isn't this an obvious question?
Are you telling me you want to invest in a dying industry like typewriters or CD players?
If you want to get good returns, pick an industry that will prosper in the next 10-20 years.
We can agreed that we cannot predict what will happen in the next 50 years, but 20 years seems quite predictable.
Easy picks would be financial industry, because as long as we have currency, financial industry like banks or investment firms will be around.
Next is utility... unless we don't need tap water or electricity, or cell phone signal, we don't have to worry about it's industry's relevancy.
The one industry that we need to be very careful is...Manufacturing...
The manufacturing industry is usually the one that requires the biggest investment of capital, and smallest in return, and the worse thing is... it is very easy to become obsolete.