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Interesting Perspective on Investing

 

I came across a post by Ensemble Capital this week which gave me a unique way to view investing. I obviously couldn’t stop myself from dissecting it and presenting you my views on the same.

Investing is intrinsically a natural act of providing resources to an organism operating within an ecosystem. Investing is a form of participating in the living ecosystem in which the human race organizes itself into groups and then engages in both competitive and cooperative value generating behavior.

Source:Ensemble Capital Blog

Before you ask what do they mean, let’s look at what we as living organisms do.

We take birth, learn about this beautiful world, get education, work to pay our bills, fulfill our responsibilities and leave the world one day. In this process just like the nature provides us with resources we as investors provide business with the resource (money $$$) we have. Similarly just like we coexist in an ecosystem along with other organisms so does a business coexisting with other businesses. Each playing its individual role just like we as humans do.

We compete with fellow individuals and other organisms for resources like land, water and air. Well so do businesses for customers, capital and returns. We coexist because we cooperate and every organism is important for balance to be maintained in the ecosystem.

Any organism getting unfair advantage and excess power leads to a lot of destruction and imbalance. Similar to monopolies that exist in business world would lead to if not kept in check.

Pulling it all together, how can you benefit from viewing investing like this.

  • Understand that businesses that do not keep pace with the world will eventually come to an end no matter how big they’re. Think of a Blackberry or Nokia in (smart)phone industry.

  • If businesses become too greedy every once in a while they ll get a shock. The seeds of destruction are sown when they get too greedy because eventually they rely on unfair means , like Enrons of the world.

  • Only the fittest businesses survive, because they keep transforming themselves to adjust according to the ecosystem. In business parlance fit businesses could be one with less leverage and good balance sheet strength.

  • Just like humans companies also have lifecycle. They are founded by a visionary thinker, they grow fast by solving a problem, they mature and age and eventually either shut down or get eaten by a bigger organism (business). Similarly every expansion(boom) in an economy is followed by a contraction (bust) and vice versa the cycle of economy. Companies that survive throughout can make you wealthy.

    Keeping above analogies in mind while selecting potential businesses to invest in might help you get better understanding and lead to better decision making.

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