We have opened atleast 3 threads for identifying “Failure Patterns”. These are Lessons from Corp Misadventures, Lessons from Corporate Fraud, and Investor Checklists. And these are for helping us AVOID mistakes.
But Avoiding mistakes does not make us a super investor. It probably makes us little better investors than the run-of-the-mill crowd.
As I see it, Investor Edges come incrementally
1). Make sure to AVOID mistakes - by identifying and incorporating as many failure patterns into your Mental Models, or investing decision making process. And, then
2). Identify “Success Patterns” (of Businesses) - how do you separate the wheat from the chaff?
There are many ways of looking at Success Patterns. Some of these we have discussed and documented in our Capital Allocation Framework thread.
And there are the classic textbook patterns, which you can read everywhere. This thread is NOT about the classic patterns -Strong business models with Moats, Ethical & Competent Management, Favorableindustrycharacteristics, High Return on Capital, etc. If found useful (say for Newbies), we can discuss that in a separate thread on Classic/Essential Success Patterns.
THIS THREAD is about, as the title says, beyond textbook patterns )- small small things, that you may not read so often in investment books, but are nevertheless pretty important to notice in a business/or changing dynamics in the business. In addition to the basics )- decent growth, decent profitability & margins, decent BS and cash flows - **should you notice a few of these patterns **in a business you are investigating, that should alert you to a more promising investment opportunity?
One way of identifying these kind of success patterns could be - If we can identify what is in the DNA of this company that will make it successful, or supremely successful.
When I start thinking like this - a few example immediately spring up in my mind. And I am sure the community will throw up many more examples. I will start sharing a few thought patterns.