Investment Review day 45 of 50: What do I look for in an investment?
What do I look for when I’m trying to evaluate an investment opportunity? A ton of things, but here are a few examples:
Long-Term Trends and Strategic Alignment: Does the company align with powerful trends that are shaping the future? For example, NVIDIA $NVDA underpinning many recent innovations in AI
Visionary Leadership: Is the company founder-led, and does it inspire exceptional culture? Tesla $TSLA is a great example of this, with Musk drawing engineering talent to him like a magnet
Brand Power: A top brand attracts talent, commands loyalty, reduces marketing costs, and allows premium pricing (consider Apple $AAPL)
Large Addressable Market: Is there ample room for the company to grow, relative to its current size? Rocket Lab $RKLB is a key player in a young and rapidly growing market
Competitive Moat: Does the company have robust barriers to entry? A strong brand, network effects, intellectual property, or an ecosystem – for example Axon Enterprise’s $AXON Evidence platform
Potential for Expansion (Optionality): Can the company branch into new markets or customer segments in the future? Amazon $AMZN started as a book store, expanded into ecommerce, and then branched into Cloud
Efficient Operations: High profit margins and low production costs are a significant plus. SaaS companies such as CrowdStrike $CRWD can upsell customers to new modules at low incremental cost, expanding their margins as they grow
Customer Base: Are early adopters enthusiastic about the product? This often foreshadows broader adoption. Wise $WIZEY benefits from over 60% of it’s new business coming through referrals from enthusiastic existing customers!
Competitive Landscape: How dominant are competitors? Are there disruptive startups on the horizon? Companies like Intuitive Surgical $ISRG have such a commanding moat, it’s highly unlikely they will be disrupted in any reasonable timeframe
But after all of that, strong financials are the most important criteria, and tomorrow I’ll be breaking down exactly what I look for when I’m digging into the numbers!
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I’m putting my holdings under the microscope. Over the next 50 days I’ll break down my whole investment portfolio. Wins, losses, and the ‘why’ behind it all. And on day 50 I’m going to share my full portfolio so you can see how my strategies played out in the real world over the last twenty years and what we can all learn together. Follow along for the journey! #StockAnalysis #50daychallenge
