Cashtoons

Looking for Clues

January 22, 2021

Picking a good company to invest in is a little like choosing the right cheetah. (Take a look back at last week’s post, Choosing a Cheetah, if you haven’t yet.)

cheetahs

Just looking at these two, you can probably guess that Speedy is the better predator.

But what if you couldn’t see the cheetahs?

invisible

It gets harder because you can’t see the place they live either:

invisible

invisible2

So you don’t know if they need to be fast to catch gazelle, like Speedy:

speedyhome

Or if they can just open their mouths and one of the hundreds of antelope around with fall in, like Spotty:

spottyhome

So we have to look for clues: sherlock

What can we see? We know how many gazelle they actually caught:

justgazelle

Once again, this makes Speedy look like the slower cheetah, when she is actually the better hunter.

Luckily, you can also see how much all the other animals living around Speedy are eating. When you compare Speedy’s meal with what her neighbors ate for dinner, you can see that not many caught gazelle at all.

cheetahdinners

This gives you clues. It is likely that there are not many gazelle on Speedy’s savanna or other cheetahs would be able to catch gazelle too. Speedy is the strongest of all the cheetahs on her savanna.

Let’s see how Spotty’s dinner compares with others in her home:

cheetahdinners

Now Spotty’s dinner doesn’t look very impressive.

If a cheetah is a company, her dinner is the money the business makes. This is why it is important to look, not only at whether your stock went up in price but also what the stock of other companies were doing. These are the clues that will tell you if you have made a strong choice.

The economy is the place where companies live, and it relies on the movement of money. When a lot of people are making money every month, and they feel safe to spend, they do. That spending moves money around. More businesses get that money and then feel that they can spend too.

movingmoney

We’ll look at this more next week.

Sources

sources

Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor


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