Schoolmates of murdered 16-year-old schoolboy Joshua James paid tribute to him in a poem at his funeral yesterday.
You are here
Understanding the game
Being a successful investor oftentimes means finding good businesses capable of producing strong financial performances over time.
For most companies, this isn’t easy: solid long-term financial performance requires tremendous hard work.
It also involves a well-defined business model capable of being successfully executed thus generating healthy profits and adding to a company’s overall economic worth.
It stands to reason that an investor’s work boils down to assessing the quality of the company’s business model, and the skills and talent of its management team to monetise it.
Company’s tend to do well when they boast two essential qualities: desirability and distinctiveness of products.
If these two factors are absent, most companies will face an uphill battle.
Even if there is some measure of desirability, it does little good if the company’s products are not sufficiently distinct from others in the market.
Thus, in order to support an investment belief that a company is a worthwhile investment, an investor must try to understand and make judgements about the robustness of a company’s business model.
It goes without saying as well, that an assessment of an investment’s merit also requires and assessment of the architects of a company’s business model (the leaders and entrepreneurs) and the operators to whom effective execution falls.
Put differently, business model don’t execute themselves.
People build, run, refine and improve them.
It would therefore be analytically incomplete to assess business models without factoring the roles of manager and executives.All told, if the model is not clear, or if it is clear but there are fundamental
weaknesses in the ability of those charged to execute and monetize it, an investor should naturally apply a measure of caution when approaching such a company.
It stands to reason therefore, that “understanding the game” involves knowing both the players and the terrain.
User comments posted on this website are the sole views and opinions of the comment writer and are not representative of Guardian Media Limited or its staff.
Guardian Media Limited accepts no liability and will not be held accountable for user comments.
Guardian Media Limited reserves the right to remove, to edit or to censor any comments.
Any content which is considered unsuitable, unlawful or offensive, includes personal details, advertises or promotes products, services or websites or repeats previous comments will be removed.
User profiles registered through fake social media accounts may be deleted without notice.