While investing in equity, How to
safeguard a Good story suddenly going bad, leaving no profitable exit…. lets
choose companies with #unbreachable_moats. Capital flows to the point of
maximum returns. When a company delivered outsized profits, its success
attracts #competition. Other entrepreneurs enter the field with their own setup,
often with #lower_priced_offerings, and take away the #first_movers market
share. Competition forces the leader to cut prices and this whittles down his
margins, impacting their bottom line directly.
Thus, over the time, the profits
of most companies tend to regress to the mean. Legendry investors liked to invest
in, the companies with big moat surrounding their business model and brand
equity. Wealth creators in equity market guide big moats consists of following #matrix
of
#early mover advantage
#high switching costs
#intangible assets
#network effect
# economies of scale.
If investors choose a company
based on these moats, and do keep a close watch to ensure that the stocks
script unfolds along the expected lines. One reason is that over the time lot of
moats got breached, so timely moat tracking is must to keep value alive in equity.
Next is to keep a watch on competitive advantage, other things could go wrong, say
the management could slip up on execution, thus when you invest in a company
with a visible economic advantage, you still cannot afford to let your guards
down and let bottom line screwed up unknowingly. Its like building your
investment castle, surrounded with big moats, having crocodiles within to create
real value for your portfolio. One build, keep #tracking developments on the
matrix of five, as mentioned above.
Disclaimer : This is purely a knowledge sharing article, not offering or influencing any deal or transaction or investments.
Birla WP Management Co.
read my blogs : www.YogeshBirlaCA.Blogspot.com
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