The Movement Control Order (MCO) and the Circuit Breaker (CB) are slowly lifting. As we ease towards reopening, I can’t help but feel a bit of disappointment. Being forced to work from home for almost 2 months had left me with a memory that is not entirely negative. I was able to work out my time well to balance between working and self-enrichment.
I have to admit, I spend quite a lot of time watching YouTube.
One of the channels that left a strong impression on me was Shark Tank.
If you have not heard of Shark Tank, it is a reality television show. Normal people like you and me with a product or an idea can seek investment funds to grow their business. The Shark Tank is where the pitching of their company happens to investors known as Sharks.
Example of Shark Tank
Should one of the sharks be interested in the product or service, the next phase would be to agree on the percentage of equity stake and the valuation of the company. A deal is concluded when the Shark and the Business Owner agree on the investment.
In many ways, it is similar to how you and I invest in the stock market. The only difference is how we invest is not shown on television.
So, what lessons did Shark Tank remind me of investing?
1. Know the Company and How It Earns Money
The pitch starts off with an introduction of the founder and the company’s products and services. It then continues to the current progress and sales number of the company, following up with the company’s future direction, scaling-up strategy. Last but not least, the entrepreneurs will have to convince the “Sharks” to invest in them.
As investors, the same process goes into analyzing potential investment opportunities. It is the same as how the Sharks analyze a pitch. Before we invest in a company, we always have to study what the company is all about. Is the company a pioneer in what it is doing? Can the company grow and have a bright prospect?
Too often retail investors put their money into a share they just treat as a stock ticker. And more often or not these decisions might not turn out very well.
2. Is the Business Owner Committed
Typically, individuals seeking investment in The Shark Tanks are direct business owners. They poured in their heart and soul, sweat and money into building a product they think is worth it. These individuals range from young 18-year-old college students to 60-year-olds retirees. Successful pitchers are usually dedicated, hardworking, shrewd, strong and have a strong clear vision.
A great business is always made better with strong management and leadership. A normal business too can also outshine in a competitive landscape. It is crucial to find out who the people managing the company are. As shareholders, investing in good business is what makes our lives peaceful. In that way, we know we have capable and efficient people running a good business and we do not have to worry about how they might be unfair to us.
3. Not All Businesses Are Brilliant. Some Are Mediocre, Some are Scams
The Shark Tank is a business pitching platform for different products and ideas. Some businesses will look innovative, some just look ordinary. Some are even just full of flaws and possibly even a potential scam. My favourite episodes are where the Sharks caught on to a scam.
The stock market is similar. There are brilliant companies and mediocre companies. There are also questionable companies. There are so many companies and as investors, we are only interested in those that are special. That means you do not have to invest in every company that presents itself.
But more often or not, every time a mediocre or suspicious company gets a positive news headline, it still attracts buying sentiments. We have to train ourselves to fall into that trap. Choose the investments that we want, don’t let the investment choose us.
4. Stick to Your Circle Of Competence
The Shark Tank boasts a panel of Sharks from different backgrounds. They are successful businessmen and businesswomen coming from different business segments.
Usually, a tech investor would be more well versed and excited on a tech pitch. An apparel company pitch would raise the eyebrows of a fashion business person more. Often, Sharks will choose investment opportunities that they are more comfortable with.
There are so many types of companies to invest in the stock market. You need not invest in a company that you are not familiar with. Stick to the companies and industries that you understand. You might find your work experience helping you analyze and make good decisions.
Also, it is also important to increase your circle of competence. Successful portfolio diversification comes from strengthening and enlarging your circle of competence.
5. It Is Okay to Beat The Queue And Overpay The Competition To Secure Your Investments
One of the Sharks that left a strong impression on me was Mr. Kevin O’Leary in the US Shark Tank edition. Kevin O’Leary is a Canadian businessman and a successful entrepreneur. I find him witty and shrewd. Often, he is the quiet one in the US Shark Tank. But sometimes, he would snatch great investment opportunities under the nose of his Shark colleagues.
In the stock market, we see more people queueing their buy and sell price at certain prices and numbers. Numbers that are perceived as psychological price supports. Sometimes queuing at a rounded number may end up futile as plenty of people are doing so.
A good investment opportunity sometimes requires a shrewd call to action. Paying a bit extra and securing a great investment is better than waiting for prices with aesthetic rounded numbers.
Price is what you pay, and value is what you get. Paying slightly more to secure a long-term great investment is a small price to pay. Don’t be pound foolish and penny-wise.
The lockdown period has seen most market indices rebounding from the bottom trough. Looking back, I would have loved to take more advantage of the sell-down. Hindsight is always 20-20. But what I am also certain was that my principles and tenacity as an investor has increased. I survived the selldown with no fear of selling out my investments. And I am always ready to bite on the next opportunity. Just like a hungry shark inside the Shark Tank.