What Makes a Business Great?
“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
The returns you get from investing in a business are really determined by two things: how the business performs and how market perception of the business changes. For the first year or two, changes in market perception can dominate the returns on your investment. If market sentiment toward a challenged company improves from hatred to mere disdain, its stock could easily double or more in the short-term. Conversely, the stock of a thriving company could show a loss in the short-term if something makes the market wary. As you continue to hold the investment for the long-term though, the business’s underlying performance – actual cash generation and growth in earning power – increasingly becomes the predominant driver of your returns. Predicting how and when market perceptions about a company will change is a tough game to play. There are certainly circumstances when it is possible, but they are rare. Aiming to identifying great companies that are poised to thrive over time and to invest in them for the long-term – while not easy – is a much better bet, hence Buffett’s advice.
But how exactly do you do that? What determines whether a company is poised to thrive? In short, what makes a business great?
At Hinde Group, we think a combination of six things make a business great:
Owner-Oriented Corporate Governance
We plan to cover each of those factors in a series of articles, which will be linked here. We hope these articles help you better understand our investment approach.
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