[Investing Mindset] - Buying at the Takeoff Point!

Over the past few decades of investing, I cannot say my results were brilliant, but I did roughly beat the market. The performance looked decent, yet I missed many key opportunities to build wealth. Looking back, rather than calling it good performance, I still feel it was a failed investment experience.

In my investing years, the first stock that made me wealthy was Starbucks, but I did not keep holding Starbucks until today. If I had put 100% of my capital into Starbucks at the time and then stopped trading, just as Buffett buys good companies and does not sell them, the wealth I accumulated should be at least 100 times greater than it is now.

So buying the right index and the right companies, and never selling, is the key to building wealth.

How can we avoid repeating past mistakes? The book "Buying at the Takeoff Point" and Buffett's concept of holding value stocks for the long term can help us avoid making the same investment mistakes in the future.

The key point of "Buying at the Takeoff Point" is how to choose a growth stock with potential. Buffett has said that growth is part of value; the key is whether you can truly see the value of a company's growth within your circle of competence.

A value-growth stock worth investing in must have the following four qualities (BASM):

1. Business

2. Assumptions

3. Strategy

4. Management

5. Business

Simply put, this is how the company makes money. A company must have a long-term growing money-making model to be worth investing in. When we consider a company, we first need to ask ourselves: how does this company make money?

When we can clearly study each company's business model and how it makes money, we can know whether that money-making model can continue to grow.

2. Assumptions

I prefer to use imagination. Whether a company's business model has room for growth imagination is critically important, because it relates to whether the company's future growth can continue over the long term.

Take Facebook as an example. We know that Facebook's most important revenue today is advertising. Where should Facebook's future growth come from? Can Facebook become a video platform and earn the same kind of profit as [AMZN] and [NFLX]? Can Facebook build Facebook finance, so personal mobile payments between friends can be completed inside Facebook? Can Facebook do small loans and Facebook payments? These are all areas of imagination for Facebook's future business model. Likewise, does Amazon have room to imagine other business models? Could Amazon also do the things mentioned above for Facebook?

So the imagination space around a company's future business model is the key factor that determines whether the company's future growth can continue or grow quickly.

3. Strategy

Once a company has the two qualities above, it is a company worth watching. Next, we need to see whether its operating strategy fits the company's strengths and whether it is focused on moving toward innovative, profitable business models.

4. Management

The last and most important point is whether the company's senior management is very focused on its work, and whether they love the company more than you do. If a company's CEO rarely appears in the media, but appears at shareholder meetings, and each time reports a new business model and vision to shareholders, that is a good management team. If a company's senior executives appear in the media every day like celebrities, you need to be very careful.

The above are the four points from this book on how to choose a growth-value company worth investing in for the long term. Besides investing in indexes, if we can invest in one or two such long-term growth-value companies and hold these good companies for the long term, they can bring us very large wealth.

Written on: July 16, 2016