I’ve always endorsed the world of investment securities’ rule “know what you buy.” A business is the business itself and many more things – its assets, people, history and products.
I would add one thing – in a competitive market, a company is essentially its customers. A company with satisfied customers who endorse their products will perform reasonably well for its shareholders. So I regret not having invested in those companies that once dazzle me as a customer. Understanding a business starts by buying its products. Investing in a company with good products is a perfect long term investment for someone like me who believes in the investing in value ( “Value Investing”) that Warren Buffett practice.
And what are the companies that I have invested in as a customer? Listed here my short list of technology companies. Knowing better is always from the perspective of direct experience. All are traded on the Nasdaq:
1- Dell Inc. (DELL)
I discovered the computers from Dell and its innovative system of direct sales by telephone and then the Internet in 1993. I remember I found in it an excellent value proposition, saving the cost of channel intermediaries who contributed very little to the quality of the products. After Dell has grown – and it keeps growing – to become the largest manufacturer of PCs worldwide, market shares grew too. Today you see Dell computers everywhere: in banks, public administration, at home.
In the nineties it had a great development. But with strong sales growth also came some problems. In recent years apart from problems of auditing their accounts, problems of lack of innovation in product design. However, they have evolved – and so has Apple evolved too. As a picture is worth a thousand words you can see the design difference between an iMac and a Dell: Since mid-2005 Dell began to lose value and have not yet been recovered. We’ll see if now – once founder Michael Dell has returned to the manager – the company straightens up. Anyway, you see here the parallel – good products, good investment.
2- Amazon.com (AMZN)
I’ve done purchase of books through since 1998. The customer service has always been excellent. Jeff Bezos, founder and CEO, has always said that the company wanted to be more focused on the customer (customer centric). In presenting the final results he said it again: “In our view, putting customers first is the only reliable way to create lasting value for shareholders.”
Large discounts on books are a very strong argument in its favor. But what loyalty really is, can be read in the comments of other readers, and its system of recommendations based on the patterns of other customers. They created a magnificent network. Clients obtain a better service through this network.
3- Google Inc. (GOOG)
I already recommend this site when I’m asked for a site with good usability Unhappily I was not able to go to the stock market launch in August 2004 when it became $85 worth. After a couple of years it is over $500. It is the fifth company by market capitalization of the United States and some say that in the long run, it could reach $2000. Wait and see, I keep using it as a client.
The important thing is that we use a lot of Google services, all are free (search engine, Gmail, Google Reader, Google Analytics, AdSense, AdWords, Blogger) and generally work very well. It has an excellent team of programmers and a business model based on contextual advertising that is growing. Even Yahoo or Microsoft can not compete against it. Although they have fallen into a couple of pitfalls like OpenSocial and it has already been rumored that the Google Phone is falling, the general value for the users is huge. And so are the chances of its stock.
4- Apple Inc. (AAPL)
I moved to the Mac world and I do not regret it. It teams up a beautiful design and an excellent operating system (OSX, whose new release, Leopard, has sold over 2 million copies in its first 4 days). That makes you forget about the nightmare of anti-virus programs and the maddening slowness of Windows.
The iPhone equates also to a huge potential market. In addition, each time more laptops are purchased (in the U.S. sales, the mobile devices of Apple have already surpassed the sales of desktops). And they are especially strong in this segment: two out of three Macs sold are notebooks. The stock is closer to $200 with a market capitalization of over $160,000 million, almost triple than Dell.
So if, as a user or customer you are satisfied, then as an investor, you’ll probably be too.