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Value Investing in Growth Companies: How To Spot High Growth Businesses and Generate 40% to 400% Investment Returns by Rusmin Ang, Victor Chng

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Chapter 4

Business—The First Piece of the Puzzle

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Understand a Company’s Business Model

The very first piece of the Jigsaw Puzzle Model is business. It is placed before all the other pieces because of its importance. Purchasing shares in a listed company is the equivalent of buying a piece of the company. Therefore, by purchasing a company’s equities, an investor becomes part owner. Warren Buffett once said: “I am a better businessman because I am an investor; I am a better investor because I am a businessman.” He meant that, in order to become a good investor, you must think and act like a business owner when you own a particular stock. Whatever affects the company’s business or fundamentals affects the value of your holdings in that particular company. In other words, if you want to outperform the market, you have to understand the business you are buying. Knowing the business model inside out should provide investors some level of certainty and reduces the risk when purchasing the stock. Furthermore, it should provide the investor an edge over the others (who do not understand the company’s business model) to see where the business will be in the future, who are the direct or indirect competitors, and the likelihood of the company succeeding.

Fundamentally, you must understand the inputs used to produce final products or services sold to consumers. Look at the largest products ...

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