Quantfury Daily Gazette
Winning stocks are in the mall
In 2019 my mother’s birthday was approaching, and I needed to get her a special gift. I didn’t have to think much since her cellphone was damaged at that time, and she needed a new one to stay connected, so the decision of what to gift was already made. I headed to the mall to look for a reliable smartphone for my mother, but one that was of great quality at a good price.
As I was walking around looking at stores, I noticed that in addition to the familiar brands we all already know, such as Apple Inc (NASDAQ: AAPL), Samsung Electronics (LSE: SMSN), Motorola Solutions Inc (NYSE: MSI). There was also a new brand called Xiaomi Corp (HKG: 1810) that was the top seller at the time.
The shelves of the tech stores were packed with this brand, and by doing some simple market research with some acquaintances and asking the store owners, I was able to realize the huge demand they were having. This company’s slogan was “Quality with a reasonable price,” which I was skeptical about, but seeing so many positive recommendations, I decided to buy one for my mother. The next thing I did was to see if it was a publicly traded company, and to my surprise, they were listed on the Hong Kong stock exchange.
I began writing my investment thesis on Xiaomi Corp (HKG: 1810) and found that the company had low debt, lots of liquidity, good profitability, which was above-market average earnings and double-digit sales growth. Without much thought, I invested in this company, and to this day, my mother’s smartphone is still working without issues, and I’m still happy with my investment. All thanks to a simple trip to the mall, which proved to be a very useful way to assess the investment decision away from the noise of the internet.
One of the biggest enemies of investors is the noise that Wall Street produces with the bombardment of news that comes out every day showing supposedly good “investment opportunities” in companies catalogued as “the new Apple.” But something that goes unnoticed is that these news, blogs and forums fight each other every day to get your attention and generate traffic to their websites, where they will end up making more money from the ads. That’s why Warren Buffet very wisely said, “I live in Omaha to get away from the noise of Wall Street.”
That’s why going out to your local mall and seeing which stores are consuming the most or where you see the most growth could put you one step ahead of the average investor. You’ll find that by simply walking around, you’ll see businesses with great competitive advantages that have unique products and that also maintain their demand over the years. There will be everything to choose from.
If you want a hamburger, you will have McDonald’s Corp (NYSE: MCD), Shake Shack Inc (NYSE: SHAK) or Burger King (NYSE: QSR) to choose from. If you’re shopping for clothes, you’ll see INDITEX (BATS EU: ITX) stores. If you are going to buy a gift for a special person, you can visit luxury stores like Louis Vuitton (BATS EU: LVHM). Or, if you need to make home repairs, you can buy your tools from Caterpillar Inc (NYSE: CAT). As you can see, there’s going to be a high-quality stock that you probably already know about, but now you’re finding out that you can buy their shares on the stock market.
One of the best opportunities we had to find high-quality companies was during the covid pandemic in 2020 when all the malls were closed. This logically was a very bad thing for the companies that pushed them into a complicated financial situation, even forcing them to declare bankruptcy, as was the case of Hertz or Forever 21.
Behind all this capital destruction, I concluded that the next time I went back to a mall, the companies that were still operating were going to be those that had been in good financial health, with a good cash size, low debt and solid cash flow. When the pandemic restrictions began to be lifted, I went to the mall to see which stores had closed and which others remained open. To my surprise was that most of the businesses that closed were local brands or stores made by local entrepreneurs.
The ones that were able to stay standing were foreign companies. I was still able to go and enjoy an ice cream from Mcdonald’s Corp (NYSE: MCD), a company that had no short-term debt, so it was able to continue operating using money from its free cash flow.
I was also in need of some new running shoes because I was going to start jogging with a neighbour, so I went to the NIKE (NYSE: NKE) store to buy some. This company has a huge competitive advantage in its impeccable logistics worldwide that knows how to adapt to the digital era by selling its own product through its website and app. I stopped by the Victoria’s Secret (NYSE: VSCO) store to get a present and realized in that moment that their competitive advantage is in the feminine empowerment that comes from having their products, hence why the brand remained strong after the pandemic.
In this business, there is no need to reinvent the wheel since you can have an excellent return in the stock market by investing in companies that have been in the market for years and whose business model has been tested thousands of times and thousands of times has proven to work. Sometimes, a simple walk to the mall is all you need to get away from the noise of Wall Street.
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