I have been learning about Warren Buffett for a long time. His lessons from 4 books and many sources have been precious mental models for me to make investment decisions. I made mistakes along the way, but I have decided to return to his principles and wisdom.
Some thoughts about investment and fast growing “valuations”.
There are way too many people starting internet startups. When we discuss startups, it’s mostly about growth, it’s about getting scale. However, is fast always good? Is scaling quickly always good?
People increase their energy level when things seem good. Startup founders boost their traffic to acquire more users as quickly as possible. They raise some money and invest in search engine marketing, and other marketing channels to achieve it. This is cool. And some startups actually become really big because they grow fast enough. Because they are in a “domain” that only the top 3 will survive, aren’t they?
They boost up top-line, revenue. They raise more and more money. Just use all the money to acquire more users and revenue. The net profit is negative? Who cares? We love to report revenue growth, didn’t we? Who cares about net profit? At least a real investor like Warren Buffett does. 🙂
What about Price/Earning? Well. We can’t measure that if the Earning is below 0, can we? Forget about that, just fall in love with a stock.
I have been learning about different types of businesses. It’s interesting how different investors measure different things. But I believe the bottom line is what matters.
Share price is driven by the emotion of the market. They love or believe in a company, and the shares go up. While in fact, real valuation is measured by current bottom line or net profit.
Let’s rethink how we value a company again.
Do we pay 10 to get 20, or do we pay 10 to get 1?
Several exceptional tech business models I pick: C2C Transport App (Uber, GrabTaxi), Search Engine, Social Media (Facebook, LinkedIn), Unique Accommodation Marketplace (Airbnb), Unique Products Marketplace (Etsy).
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