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I don’t like to make “predictions”. When I hear some gurus, or analysts claiming they know what’s exactly going to happen in the economy or the stock market, or where the price level of the index is going – I ignore it. Why? There’s absolutely no way we can know what’s going to happen. Then you might ask: “Willie, isn’t investing all about predictions?” Yes, but in a different way. I’ll explain. Now, I don’t like to make predictions I’m unsure of. But I want to make predictions that I’m absolutely sure will happen. That to me, is one I’m completely comfortable making. For instance, I can predict we’re all going to grow old and die one day. Which means as we grow older, we’re going to get more hospital scans, medications and injections. You’ll get even more tests because medical technology will develop even more tests. In other words, the older you get, the more medical treatment. The need for healthcare is important. The world keeps changing over centuries. We’ve gone from using landline phones to smartphones. We’ve gone from watching infomercials on TV to engaging live-streamers on social media platforms. We’ve gone from snail mail to instant messaging. Even China has skip[ped an entire generation of emails and jumped into the full world of social media communication. But what I can completely predict is we still love convenience, we always love discounted prices (tell me that one person who likes to pay a premium!), we want quicker solutions to any problems, we like to eat/drink sugary stuff, we like our beers, wines and spires, we crave social status (luxuries), we crave deep human connections (relationships). The fact is there’s some things that hardly change. And these are the predictions I’m willing to bet my money on – not some guru or bank analyst trying to tell you where the stock market’s price level is exactly headed. For instance, I find it hard to imagine people will stop drinking sweet stuff one day. Or stop hanging out with friends for a drink. When a business sells something people love, they form a habit around the product or service. And just want to keep coming back for more. This way, the business doesn’t need too much capital investment to grow the business. Excess profits are then used to reward shareholders. As an investor, I’d start thinking this way. One example is Monster Beverage. Over the last ten years, it spent ~US$1 billion on capex. But it brought in ~US12 billion of cash flow. Its revenues grew 175%, net profits up 176% over the same period. In fact, Monster Beverage is one of the best forming stocks over the last 20 years, returning shareholders ~20,000% returns. That’s a 29% compounded annual growth rate. The thing is, Monster Beverage isn’t a fancy tech company. It sells energy drinks that keep getting people coming back from more. Even during COVID-19 pandemic, it was still growing at an average 14% a year: Based on my prediction people still like to eat/drink sugar stuff, it’s the kind of company I want to bet on. Because these companies bet on habits that hardly change. It bets on people coming back for more sweet drinks. I mean, it’s hard to imagine the world completely stopping drinking sweet drinks. When you’ve a company that sells a “habit-forming” product, it produces so much free cash flow it can pay down its debt, return cash to shareholders or simply buy back its own shares. Monster Beverage continued to buy back shares over the last few years – showing a sign of financial excellence. While gurus and analysts guess where the exact levels of the stock market will trade tomorrow, worrying about prices and expectations, I'd take a different approach. Instead of guessing what levels the stock market will trade tomorrow, or worry about whether the market is going to crash, maybe we ask ourselves: What can I predict that I’m completely sure of. If you're just starting out investing, check out my FREE resources on investing here. Sometimes, investing can be simple. Willie Keng, CFA Founder, dividendtitan.com P.S. Like this issue? Click HERE to join other dividend investors reading my DT Compound Letter. I send my regular letters to your inbox. |
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