Thread by @SteadyCompound

🧠 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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