From Geoff on Focused Compounding, I have learnt to pay attention to the bargaining power the business has with the parties involved (and that is how I judge how well I understand the business). As well as the positioning of the business in it's industry (how much change occurs - how often market share changes, etc).
Do you think of stuff like this in the background as well?
Hmm. I don't put as much focus on the industry as I understand Geoff does, but so far that has gone ok, since I start at the financials, valuation, etc... So unprofitable or poor industries get filtered because the companies within are usually too poor quality. I do however think about things such as "why" or "how", or "what is normal" when I see margins that are unusually high. Answering this usually requires looking at the industry and understanding the competitive landscape. So, no and yes... :)
When you think of risk/reward. Is this what you mean?
Risk
I assume by risk you mean permanent loss of capital or not losing much if things do not go well for the business. So I guess Scenario 2 at worst hopefully.
Reward
Your reward would be 6% dividend yield and 4% growth (also maybe re-rating?)?
Yes! By risk I mean what do I lose if things go south. "If I'm wrong, what are the profits/ebit/cash flow, and what is the multiple I can get out at". Something like that.
From Geoff on Focused Compounding, I have learnt to pay attention to the bargaining power the business has with the parties involved (and that is how I judge how well I understand the business). As well as the positioning of the business in it's industry (how much change occurs - how often market share changes, etc).
Do you think of stuff like this in the background as well?
Hmm. I don't put as much focus on the industry as I understand Geoff does, but so far that has gone ok, since I start at the financials, valuation, etc... So unprofitable or poor industries get filtered because the companies within are usually too poor quality. I do however think about things such as "why" or "how", or "what is normal" when I see margins that are unusually high. Answering this usually requires looking at the industry and understanding the competitive landscape. So, no and yes... :)
Thank you for sharing your work.
When you think of risk/reward. Is this what you mean?
Risk
I assume by risk you mean permanent loss of capital or not losing much if things do not go well for the business. So I guess Scenario 2 at worst hopefully.
Reward
Your reward would be 6% dividend yield and 4% growth (also maybe re-rating?)?
Yes! By risk I mean what do I lose if things go south. "If I'm wrong, what are the profits/ebit/cash flow, and what is the multiple I can get out at". Something like that.