Learn to invest with Buffett

Chapter 40

Chapter 6, Section 4, Stock Picking Trick [-]: Choose Companies with Good Development Prospects for Investment

Investing is actually investing in the future of the business.

--Warren Buffett
Investment performance is determined by the future development potential of the company.People often refer to enterprises with good development prospects as "unbeatable investment targets".If you want to win in the investment market, you must keep a close eye on these "unbeatable" high-quality companies in order to obtain huge profits.

Investment performance is determined by the company's potential for future development, so Buffett believes that the nature of the industry is more important than the quality of managers.After all, people are unpredictable and managers can "degenerate", but the overall industry situation is generally not so easy to disguise.The secret of Buffett's success is that he will invest his money in the most efficient companies.

In terms of the choice of investment industries, Buffett often chooses some resource-monopoly industries for investment.From the perspective of Buffett's investment composition, resource monopoly enterprises such as roads, bridges, coal, and electric power account for a considerable share, so there is great potential for development.For example, Buffett bought a large number of Sinopec stocks in the first half of 2004, which fully reflects this investment strategy.

Buffett once said that counting from the first civil aviation company, the entire civil aviation industry has had no profit for decades.Since Buffett's investment in USAID, one of the major U.S. civil aviation companies, failed to make a profit in 1980, Berkshire's investment standard is that even if it does not lose money, as long as it does not have some considerable profits, it is already a failure.He joked that he set up a phone number similar to the one that American ex-smokers and alcoholics can call in for consultation every time he can't help it, so that every time he suddenly wants to invest in a civil aviation company, he can call in for consultation.

Buffett contrasts the highly competitive but low-margin retail industry, which must be smart all the time, with the high-margin television industry, which only needs to be smart for a while to dominate the market: "Retail is a very competitive business. Many retailers once had commanding Astonishing growth rate and return on shareholders' equity, but then suddenly the performance fell sharply and declared bankruptcy. Compared with manufacturing and service industries, this meteor phenomenon is common in the retail industry." The reason is that these retailers must always maintain Smarter than your peers.But no matter how smart you are, your competitors are always ready to copy what you do and outdo you.At the same time, a group of newly joined retailers are using various means to lure your customers. Once the retail performance declines, they are bound to fail.

If you bought a local TV station a long time ago, you could even have someone who never did anything run it, and it would last for decades, and you would make a profit just by running it behind the scenes.If a professional manager manages it for you, you can get high returns as long as you don't interfere.However, as long as the retail industry employs improper personnel, it is tantamount to self-destructing its future.If someone else is asked to manage the supermarket, it is tantamount to the rapid suicide of the enterprise.

The companies Buffett invests in are aimed at the consumer market.Some are brand product companies, such as Coca-Cola, and some are marketing industries, such as department stores, jewelry, furniture, insurance, etc.

For example, the world's most famous Gilletee razor company, Buffett believes that consumers need to change the blades for one or two yuan every ten days, and it is impossible to save this little money by risking their cheeks to try other brands .

For those parents who want to let their children watch movies, it is impossible for them to spend dozens of hours watching multiple movies first, and then let their children watch a few of them.Modern people usually don't have this time.Disney movies instantly became a brand trusted by parents.

Buffett's observation of consumers is that Coca-Cola's market will become bigger and bigger, not only will its turnover increase, but its market share will also increase.This is because of the brand advantage you have when you drink Coca-Cola.This is the most well-known brand in the world, and it is also the most recognized commercial brand by consumers all over the world.

Buffett also found that the United States has an inexplicable advantage in the internationalization of business.For example, fast food (McDonald's) and soda (Coca-Cola) markets, it is really hard to imagine a Japanese, French or German company can occupy half of the global market.

But some products can easily be popular all over the world, but some can't.For example, candy, in the three markets of the United States, the United Kingdom, and Japan, different brands occupy the top spot.

Investing in stocks is actually investing in the future of stocks.

As far as a listed company is concerned, the past glorious deeds and today's proper operation are good things, but they have all been reflected in today's stock price.Therefore, for investors, what can make money for us is the future achievements.Therefore, when we identify an enterprise, we should grasp the potential of the company's development.A company's growth potential is indicative of its future performance.Buffett also said that what really determines the success or failure of an investment is the future performance of the company.

Just imagine, if the success or failure of investment is determined by the past and today, then anyone can invest and become rich without strong analytical skills, because the performance of the past and today is public information and everyone knows it.

For investors, when looking for targets, choosing those companies with development potential is undoubtedly an insurance for their investment.

Investment motto:

It is very important to grasp the development potential of the company.If the company lacks good prospects, investment in this kind of company negotiation will fail.Only by choosing those companies with better potential can higher returns be obtained.

(End of this chapter)