Smart Investors Do This
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Everything is determined by price - the products you buy, the decisions you make, the stocks you invest in, etc. But who sets the price? You do!
Based on what? Logic and emotions. And, as is the case with all things in life, they have to be balanced.
So, smart investors read to find that equilibrium. They browse through, analyze, and draw assessments on things that cannot be quantified.
Don't get me wrong, numbers are great. But they can only tell half of the story. So, you need to dig deeper to fully understand the business.
Then, and only then, can you truly see if the price is right. And the best companies in which to invest will always have some sort of durable competitive advantage.
I know...it's a bit cliche. But, it's essential. Let me tell you why...
Let's say you're after a new phone. As mentioned, logic and emotion will drive any purchase. But what happens if you take away the emotion?
After some browsing and contemplation, it'll come down to price. And, surely, you'll go for the cheapest option.
Fast forward next year. You need a new phone. What are the chances you'll buy the same one? If the price is the only thing that matters, there is no brand loyalty. And a business without any brand loyalty will always be inferior.
These are called price-competitive businesses. And they're in fierce competition with each other. Choosing a winning stock in that field is very difficult.
So, smart investors do something else.
Competitive Advantage Businesses
Let's go back to the phone example. iPhone users usually don't want to switch to another device. Why? Because now, you have logic and emotion in play. You buy an iPhone to fit in and feel good. It represents a certain level of quality to you, and it affords a certain level of prestige to you.
Your willingness to pay increases. And Apple can charge a very high premium for that, as the price no longer matters as much. Maybe that's why they're the biggest company in the world. Their competitive advantage lies in the brand itself.
Now, I know what you may be thinking...
How to Find Enduring Companies
Brand power is not the only type of competitive advantage to be found by investors. Here are a few more...
But most investors already know these. And that means their competitive advantage is already priced into the asking price of the Market. Now, you're in a race against an endless pool of investors to discover the next amazing business ahead of everyone else.
While that may be true, you're also ahead of most investors who don't know the secret:
A competitive advantage business will always win over a price-competitive business.
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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.