You need to distinguish yourself to make real returns.
To do that, you need to understand what makes for an all-star investment. And all-star investments are about all-star businesses.
I’m talking about investments that keep on giving. Don’t fall for the hype of a single investment making you into a Warren Buffet or Ken Fisher. You see it all the time…internet gurus promising that if you invest in this company, you can make 300% gains. It might happen, but it’s almost always just hype, or even worse, a recipe for disaster.
The real pros have been at it for a long time. And they understand that like most good things in life, good investments take time and constant perfecting of your craft. Short term returns usually fade quick. Be wise and make your returns for the long-term.
I heard a quote once: “I’d rather be working for a paycheck than waiting to win the lottery.”
It means you need to create your success. A million dollars won’t come knocking on your door. And if you learn how to play the game right, you won’t need to win the lottery.
One crucial aspect of playing the game is being patient and focusing on incremental gains.
Think about the gym. Do you think any bodybuilder gained that muscular physique over night? No. He worked hard for it every day for years?
Investing isn’t any different. But just like bodybuilding, not all workouts are created equal. You have to know which workouts are going to pay off and when to change things up to recharge your gains.
Likewise, you need to know which businesses to invest in, how long to hold, and when to sell.
How do you do this? By picking all-star investments.
Here are the ways to spot them….
What Distinguishes All-Star Businesses
1) All-star businesses have dominant pricing power. Pricing power is a fundamental concept in business. It’s understanding what happens to demand when you change the price of a product.
To have dominant pricing power means that you can increase the price of your product and people will keep on buying. This can happen for several reasons. One, because you have very loyal customers. Two, because you’re the only one offering a necessity. Or three, because people can’t help but desire your product.
One example is a top cigarette company, like Marlboro. It can increase its prices because its customers need to smoke. And they like Marlboro the most. So what are they going to do? They’ll keep on buying. Look for business that have dominant pricing power. They’re the leaders and they’re going to keep on growing.
2) All-star businesses sell what we all need. Like I alluded to above, business that sell necessities are usually top dogs.
For one thing, you know that people are always going to buy their stuff. Cars, food, clothes, furniture…we’re always going to need these things. And because we’ll always need them, we’ll continue to buy them even when times get tough.
For example, McDonald’s (MCD) stock rose during the 2008 crash while the S&P 500 fell almost 40%. This is because McDonald’s sold a basic need for cheap. Start paying attention to the things you use on a daily basis. These are the business you want to go after.
3) All-star business scale easily and quickly. A business that’s scalable for relatively low costs is advantageous. That’s because you figure it out once and then spend the rest of your time multiplying the same concept.
If you find a business that’s scaling quick or can scale quick, you know you’ve found an all-star.
4) All-star businesses give their customers a product they can’t refuse. “Make him an offer he can’t refuse.” — The Godfather. Similarly, all-star businesses give their customers something they can’t refuse. Necessities like we mentioned above…water, clothes, etc. But there are also other aspects of our society such as infrastructure and transportation. And one more: addictive products. Cigarettes, caffeine…these companies got their customers by the wallet.
-Investing Insider Magazine