We all look for a good company when we want to invest in inequities. We want our investment to compound over years and deliver multifold returns.
The two biggest factors that play a crucial role in a profitable investment are good company and our ability to hold it for years.
Finding a good company is not rocket science. One investor with a good understanding can identify a company that is worth investing in.
Any good company has 4 distinct features.
- competitive advantage,
- stable earnings
- above-average management
- market leadership.
Competitive advantage or economic moat is the secret to all the investments of Warren Buffet.
Competitive advantage is the invisible force that differentiates a company from its competitors. A company that earns a stable revenue is always a better investment than a company that grows through the boom and bust cycle.
The management that runs the company plays a crucial role in the company. Capable management can foresee what is coming and steer the company through troubled times.
If a company is the market leader in its industry there is a high chance that the company will deliver a handsome return to its investors.