🧠 5 mental models that helped me recognize the patterns of great investments early:
Theory of Reflexivity by George Soros
I watched this play out in real-time with Tesla
We often think earnings drive share prices
But high share prices allowed $TSLA to raise a 'limitless' amount of capital
Which in turn allowed them to survive & eventually deliver earnings
Ecosystem Control by @DennisHong17
Every stakeholder in the ecosystem is voluntarily locked into the business
That lock-in is so compelling & powerful that it is economically irrational for anyone to unlock from the ecosystem
Companies that are Verbs
"Let's Zoom to discuss"
"Let me Google it"
Companies that become verbs gain high ROI on marketing
Word of mouth network effects create high-quality touchpoints and increase the frequency of usage
h/t @investing_city podcast ep #60
Razor & blade model
The razor is sold at a low price to increase sales of a high margin complementary good—the blade.
Predictable, recurring revenue that stacks up overtime drives huge investment returns
E.g. Peloton $PTON drop prices to boost monthly membership
Operating leverage
Companies that grow their revenue while the bulk of the costs are fixed
Once it passes a tipping point, it'll explode with profits
How much does it cost for Facebook to earn an additional dollar of ad revenue?
Nothing!
It all flows to the bottom line
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