How To Pick Winning Investments
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Don't be basic. Let me tell you why. Every day, you see a bunch of ads. But how many do you actually remember, if any?
What about that “weird” one? The thing is, being different is what gets companies noticed.
However, differentiation alone is not enough. A few other things need to align for a company to succeed, and eventually, turn into a winning investment.
This is also reinforced in this article by Harvard Business Review, which details that a company has an opportunity to differentiate itself at every point of contact with its customers.
And that’s what you’ll find in this article. But first, let’s talk about…
Why Seek Differentiation?
There are two primary ways for a company to succeed:
1. Sell something cheaper than the competition
2. Sell something better than the competition
When it comes to the first group, there is one major issue. You’re scraping the bottom.
You can’t expect to make a big amount of money if your only competitive advantage is price. This is because sooner or later, another company will swoop in with cheaper prices. It's not sustainable over the long-term and essentially comprises a losing strategy. That’s why you need to be different.
"In order to be irreplaceable, one must always be different." - Coco Chanel
The same applies for companies. Let me give you an example.
Starbucks doesn't just sell coffee; they offer an experience. They personalize drinks with special toppings and serve them in cups labeled with customers' names. No wonder they’re more successful than the average coffee place.
And that shows in the stock performance too. Here is another example.
Clearly, this type of performance is driven by differentiated products and strong financial metrics as reflected below from Seeking Alpha:
I know what you’re thinking…
What's in it for me?
As an investor, it’s your job to seek durable stocks. As noted in a previous article My Core Investing Principles, a durable competitive advantage will enable a company to pull itself out of almost any bad news hit from the stock market, and it will better enable the profound effects of compounding. Compound interest needs time and, therefore, durability is an essential factor.
If you buy a stock and it goes bankrupt that’s on you, oftentimes due to the fact you didn’t do your research properly. Sorry for being harsh, but sometimes that’s the only way to get a message out.
To make it up to you, here is a present...
Ten Winning Companies
Here is a list of ten companies that succeeded through differentiation. Return on Invested Capital (ROIC) is shown as 5-year historical average, easily extracted using Seeking Alpha Premium, our recommended investment analysis tool.
Apple Inc. - Renowned for its seamless integration of hardware and software, offering a premium user experience unparalleled in the tech industry. ROIC 29.2%
Tesla, Inc. - Pioneer in electric vehicles with cutting-edge technology, superior battery performance, and a focus on sustainable energy solutions. ROIC 7.8%
Amazon.com, Inc. - Offers an extensive range of products, exceptional customer service, and its highly successful Prime subscription service, creating a one-stop shop for consumers. ROIC 6.8%
Netflix, Inc. - Revolutionized entertainment by providing a vast library of on-demand content, including original programming, through a user-friendly streaming platform. ROIC 10.1%
Nike, Inc. - Known for its innovation in sports footwear and apparel design, backed by strong marketing and endorsements from top athletes. ROIC 16.8%
Starbucks Corporation - Creates a unique café experience with personalized drinks, a welcoming ambiance, and a strong emphasis on customer service and community engagement. ROIC 18.6%
Adobe Inc. - Dominates the creative software market with its suite of industry-standard tools and services for design, photography, and digital marketing. ROIC 17.9%
Salesforce.com, Inc. - Offers cloud-based CRM solutions that focus on scalability, customization, and ease of use, catering to various business sizes and industries. ROIC 1.3%
Chipotle Mexican Grill, Inc. - Stands out for its commitment to fresh, customizable, and ethically sourced ingredients in its fast-casual Mexican cuisine. ROIC 9.4%
Lululemon Athletica Inc. - Combines high-quality materials, fashionable designs, and a lifestyle-focused approach in its athletic apparel, appealing to a broader market beyond just sportswear. ROIC 24.5%
I don't necessarily want you to buy these stocks. These are widely known brands that have been around a while, so everyone already knows about them, and the chances of you making 10x on that investment are smaller at this point. Although, they may make great additions to your portfolio at the right price.
Instead, find younger companies that you believe are different and send them to me so we can discuss. Companies that are producing differentiated products or providing differentiated services.
I love to talk stocks. Till next time, friends.
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Information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions. I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP. The contents of this site and the resources provided are for informational and entertainment purposes only and do not constitute financial, accounting, or legal advice. The author is not liable for any losses or damages related to actions or failure to act related to the content on this website.