Are You Telling Me That Watching TV Can Help Me Learn About Investing?
March 25, 2015
“Stop watching so much TV!” is a phrase I am sure that many of us have heard from our parents when we were growing up. There’s just something magical about that little black box (Well nowadays it’s more of a flat screen) that allows you to transcend space and time to experience things that you might never be able to physically experience. Well you could say that it’s a virtual time machine of sorts.
Growing up now, even with the development in the entertainment field, be it from our TVs or desktops or even from our tablets, watching shows still take up a significant portion of our lives. So why not try to watch stuff that could entertain us as well as help in our investments and at the same time!
First aired in 2009, Shark Tank is an American reality competition television series essentially showing us the American Dream over six seasons with over a hundred episodes to date!
Basically how the show work is that they have entrepreneurs pitching their business ideas to the sharks – a panel of experienced businessman and businesswoman in the hope that someone on this panel makes them an investment offer in their product.
What attracted me to this show was the interaction between the panellists and the aspiring entrepreneur whereby the contestants would be put to the task with a gruelling Q&A session. And if they could still survive after the grilling, that would be when the sharks would be interested. On the other hand, if they were like a deer caught in the spotlight, then I guess you could say that they got eaten by the sharks.
Through these questions we get to understand the thought processes of both the panellists as well as the contestants on how they evaluate a business. And even if they were evaluating a private business, I found that some of these questions tend to work in assessing a publicly listed company as well.
Let me show you 3 things I learnt from Shark Tank.
You HAVE To Do Your Homework
When you are investing in something, I would think it’s very important to know your product. On Shark Tank there are the good examples of people that know their product inside out and the bad examples that are just selling an idea. When you are the founder of the company yet you can’t even convince people to buy your idea or even explain how your product works properly, I think that’s quite a large red flag to take note of.
Some of the contestants were so unprepared that it was painful to watch. Some were even stuck at questions like “How much does it take to manufacture one of your product”. You would expect that given that you want to do business, you would know your costs!
Think Like A Businessman
At the end of the day a business has to make money otherwise why would you invest in it!
This directly translates the profitability of a company. Why would we keep throwing good money after bad if the investment doesn’t give us any return?
When assessing a business, we have to consider questions like:
“How can the business grow?”
“Is it a very competitive market?”
“How much are you making for every dollar of sales?”
Like Warren Buffett mentioned, “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
Valuation Does Matters
When it comes to investing, price is key. When you overpay, the odds of you making money would dramatically decrease!
Watching the entrepreneurs negotiate with the sharks can sometimes be painful. Just take this case for example, this one contestant wanted to sell 10% of his company for $200,000. The exchange with the sharks went as followed:
Shark: “So you are telling me that you are selling 10% of your company for $200,000.”
Shark: “Let me get this straight, at the moment your company has no sales, you don’t even have a prototype and there’s no patent on your potential product and you are pricing your company at $2 million?”
I think we all know where this went.
Value In Action
So there it is, watching TV can really help you!
If you have the time, do watch Shark Tank! Here’s Shark Tank season 1 episode 1 for you. The second contestant is quite epic. In a very entertaining way!
Join us on Facebook for more exciting updates and discussion about value investing.Submit your email address for important market updates and FREE case studies!
We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded.The information provided is for general information purposes only and is not intended to be any investment or financial advice.
All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Mun Hong does not own any shares in the companies mentioned above.