Student Question: How Do You Discover Good Companies?

Student question: [How do you discover good companies?] CLEC Investment and Financial Education Channel. Post date: March 09, 2020

Question:

[Hi Teacher Jame,

Thank you for your analysis! Square's financial reports really are getting better and better!!

When you look at a company and want to know whether its potential is good, besides the prospects for its products, which company indicators do you pay special attention to and look at first?]

Answer:

Besides the product, there is also company leadership.

But ordinary people have a hard time understanding management at the beginning. For example, SQ's CEO does not make every investor feel secure.

For products, pay attention to this: they did not exist in the past, they exist now, and there will be more of them in the future.

This is what Buffett means when he says that even if an idiot ran the company it would still be fine, because the company's product itself has extremely strong appeal.

As for indicators, what ordinary MBA and economics programs study is not useful. Investors should personally use the company's products and services and feel them directly.

When I invested in SBUX, I went to Starbucks every day to drink coffee and count customers.

When I invested in AMAZON, I ordered things almost every day and called customer service. Once the call took longer, and the customer service representative was very patient. I later read that AMAZON requires customer service not to hang up before the customer does. I heard a senior citizen once talked with customer service for half a day, so the representative had to go to the bathroom several times before finishing.

AMAZON also often lets you return items immediately and conveniently without requiring a reason. If a product is shipped and sold by AMAZON and I discover that I did not receive it, I contact AMAZON and they immediately send another new item. At most, if I receive both, they ask me to help return one.

Recently, I had another experience. I bought alcohol wipes and wanted to return them because the product listing was wrong. I found that I could not return them online, so I called customer service. Amazon customer service told me, OK, I have refunded the money to your account. He asked whether I would use the product. I said I would not. He said, oh, then you can give it to someone who needs it. You do not need to send it back.

For PYPL, I actually sent money to a classmate in Taiwan, and he received it in one second. That is the performance of perfect service from a good company.

Apple needs even less explanation. I use Apple products, and so far the products and service only exceed my expectations. The products and service are truly good.

So when we talk about how to choose a company or discover a good company, besides having a sensitive nose and broad industry knowledge, you must be able to personally experience the company's products and services. Not every good company will come into your life; that depends on opportunity. When I encountered Square, it was at a flea market in San Francisco. I noticed that the stalls were all using Square's mobile card reader. It felt like an electric current went through me. I knew this was an extraordinary business model. Square had not gone public yet at the time, and I waited six months until it finally listed.

So investing in individual stocks requires your own effort and learning, a sharp product instinct, and a very strong interest in investing.

Economics, MBA, and EMBA courses cannot teach this in school, and academic indicators cannot judge the market or select companies with potential for long-term investment.