According to Buffett,
“I am a better investor because I am a businessman, and a better businessman because I am an investor.”
It is true that in order to success making money in stock market investment, one should know and understanding the company he want to own very well.
What kind of business I would prefer to own?
Business I can understand
Many investors including Warren Buffett himself emphazising on buying stock that we can understand all about it, mainly how the business generate money, what about its industry cycle, etc.
This is true especially for long term investment strategies, where an investor would like to hold onto a good quality stock over a long period of time. Therefore, simple business model like consumer stocks is much more easier to understand for most people rather than that of complex one like semiconductor business, or oil and gas company.
Business that sells unique product or services
Find sustainable business that able to generate sustainable profit overtime. There are some companies that are less affected in downturn economic cycle, where people keep using and continuesly looking over their product or services most of the time.
Business that are fundamentally sound and safe
Peter lynch once said, "A business with no debt can’t go bankruptcy."
Borrowing always comes with cost that have to be pay. Therefore, higher debt equal to much higher cost, and much higher cost equal to less return to shareholder.
But sometimes, company just had to borrow to growing its business. Therefore, debt is not necessary a bad things as long as it is manageable. As a basic knowledge, it is better to invest in company with lower debt and higher cash.
Business that having good size of economic moat and keep widening its moat
An economic moat or sustainable competitive advantage, refers to a business’ ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms.
A company that having wide size of economic moat has higher chance to increase in its intrinsic value at higher rate than its competitor.
Business that I will be happy to hold if the market is close for 5 years
There is company behind the stock. Don’t buy shares with anticipating it price would rise in near term, but buy stocks as if you buy home. Of course you won’t sell your home tomorrow after buying it today, right?
Therefore, you should invest for long term purpose, rather than try to predict the direction of stock market and anticipating for quick profit. Let the power of compounding works over your money.
http://klse.i3investor.com/blogs/valuedividend/119107.jsp
