Looking for winning investments? Follow this simple rule
Individual investors have access to an almost endless amount of market data coupled with an endless stream of forecasts and opinions from financial experts. Ttry to understand everything to make informed investment decisions can be deeply confusing. However, I’m here to tell you that there is an easy to use filter that you can implement to help you beat the market.
In most areas of our life, it pays to keep things as simple as possible. This is not laziness – it is an acknowledgment that positive results are often based on a few very important variables. The concept can be applied to stock picking, and in that vein, investors would do well to follow one obvious rule above all others: just invest in companies that sell exceptional products and services.
Let’s look at three great examples of companies that have outperformed the stock market by delighting their customers.
With 803 warehouse stores and 107.1 million members in 59.1 million households around the world, Wholesale Costco (NASDAQ: COT) has a loyal and passionate clientele which allowed it to generate $ 163.2 billion in sales in its fiscal year 2020, which ended on August 30.
The business model of the company is to sell a large number of products in a wide range of categories at competitive prices. Its massive size allows it to buy inventory at extremely low prices and pass its savings on to buyers. But what makes the whole experience superior is the treasure hunt atmosphere. Because stores constantly have surprise deals and varied merchandise, shoppers are encouraged to visit often and spend time browsing. This value proposition has resulted in a membership renewal rate of 91% in the United States and Canada and 88% globally.
Costco shares have produced annualized returns of 19.7% over the past five years. And investors can be assured that many years from now, Costco will still offer customers low prices, a wide selection of everyday products, and an overall great shopping experience.
Netflix (NASDAQ: NFLX) pioneer of the streaming video industry, and the rise of this new entertainment segment has in turn led to the widespread tendency to cut the cord. For $ 13.99 per month, Netflix viewers have the ability to watch billions of dollars in series, movies and documentaries whenever and wherever they want. And the number of options available to subscribers is only increasing: the company has spent $ 13.9 billion on content in 2019 only.
Netflix has demonstrated incredible pricing power over the years, with the additional revenue it generates being reinvested in product improvement. Average business income per user (ARPU) went from $ 7.85 in 2016 to $ 10.99 in its final quarter. “Sometimes we’ll go back and ask these members to pay a little more to maintain this virtuous cycle of investing and creating value,” said co-founder and co-CEO Reed Hastings in the third quarter. earnings call.
Since early 2016, Netflix’s stock has skyrocketed at an annualized rate of 37.5% per annum. It absolutely crushed the market by innovating in the media space and making video consumption more user-friendly, entertaining and convenient.
The coronavirus pandemic presented Interactive Platoon (NASDAQ: PTON) with the ability to really shine. The company’s already popular connected fitness equipment became even more valuable when gyms were closed and people trapped at home began to look for other ways to work out. Revenue for the first fiscal quarter (which ended Sept. 30) has skyrocketed 232% year-over-year, and management expects it to end fiscal 2021 with nearly 2.2 million connected fitness subscribers.
What separates Peloton products from the stationary bikes and treadmills that collect dust in so many basements is the dynamic software that powers everything. The management of the company is focused on finding ways to improve this technology, from signing partnerships with superstars like Beyonce to expand her workout library, which now includes cross out Classes.
The Peloton model of adding social, competitive and fun elements to home training has propelled its stock up more than 525% since its IPO in September 2019. The company has certainly received a solid boost from the pandemic, but based on the long wait times for the delivery of his exercise equipment, he will likely continue to hum even after the seizure is over.
Always keep this in mind
The gains that Costco, Netflix and Peloton have brought to shareholders demonstrate that investing in companies that sell great products and services can be a winning strategy. Investors would benefit greatly from using a consumer perspective when trying to identify stocks to add to their portfolios.
These companies are known to relentlessly focus on upgrading their offerings with the goal of keeping customers happy and enthusiastic. Offering a better value proposition than your competition is a huge competitive advantage. Choosing these types of companies for your portfolio and holding them for the long term will increase your chances of beating the stock market.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.