An Economic Moat That Has No Name
An Uncommon Buy-Signal You Won't Find in Textbooks
Dear readership,
most investors dream of discovering one of the big growth stocks before its price multiplies. Who doesn't know the articles from financial blogs that calculate how much wealth you would have now if you had only invested in Amazon AMZN 0.00%↑ 20 years ago?
Of course, it's always easy to say something like that in retrospect.
In hindsight, you are always wiser.
But what reliable methods exist for spotting growth stocks before they break out?
In a previous article, I have already highlighted the fundamental factors that one should pay attention to:
But are there “soft factors” that others are overlooking?
What could be a unique valuation method that you won’t find in textbooks?
My long-time readers know that I like to give them new perspectives on how to find promising stocks. Therefore, I would like to share an observation I have made over the last few years.
I noticed a connection between stock performance and something that I would call an economic moat.
The problem with this moat is: It’s incredibly rare.
The good news is: It’s incredibly easy to spot once you are aware of it.
What is it?
It’s the highest form of branding and I call it:
“The verbalization of your product or your company.”
What do you answer when someone asks you a dumb question that the person can look up for themselves on the internet?
“Duckduckgo it!”
“Bing it!”
or
“Google it!”
Its earliest known use as an explicitly transitive verb on American television was in the "Help" episode of Buffy the Vampire Slayer (October 15, 2002), when Willow asked Buffy, "Have you googled her yet?".
The company GOOG 0.00%↑ went public in August 2004 and the attentive investor could have noticed that something big was brewing with this company when to google something was added to the Oxford English Dictionary on June 15, 2006 (If my newsletter had existed at that time 😎).
Another example:
Photoshop ADBE 0.00%↑ is generally regarded as one of the most feature-rich image editing programs. In the image editing industry (for example photographers, web designers, advertising agencies) it has become the industry standard.
Many functions regularly used in image editing software today were originally first introduced in Photoshop. Due to the widespread use of the software, photoshopping is now used in technical jargon as a generic name synonymous with computer-assisted image manipulation.
Even if you don’t use the original program!
Imagine that you build an image editing program and people still use your competitor’s name for your product!
How many companies manage to achieve such strong branding or launch innovative products that become household names?
Why good branding leads to outsized returns and how investors can use Interbrand’s yearly brand ranking to beat the market you can find out in a previous article:
We are currently witnessing a similar phenomenon with a company that went public a few years ago.
I have them on my watchlist because they managed to turn their business around after years of losses and it’s interesting to see how their ideas will play out in the long run.
For now, I need a few more quarters to draw any conclusions.
Can you guess which one it is?
I’ll give you a hint:
For a long time, real estate owners were renting out holiday homes or short-term rentals.
What do they rent out now? 😉
Many investment opportunities are in front of our eyes. And we don’t realize it.
Watch out for new words that are added to the dictionary and are associated with a product or a company. This could be the beginning of years of market dominance.
Years before Wall Street realizes it.
I hope you learned something today.
Until the next issue. 👋
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Disclaimer: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from my research. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.
I look forward to the Onveston Letter. It is a wealth of information! Thank you!