Types of businesses that fail
David Rocker identified three types of businesses that fail: “frauds, fads, and failures.”
Accepting and Learning From The Mistakes
“It’s okay to be wrong; it’s not okay to stay wrong.”
People will do anything to downplay their mistake. That’s the biggest mistake. Accept it and change course.
To understand and learn from history, don’t just look in the recent past, go beyond.
Why Restaurant is a bad business
Restaurants always need to keep updating their decor. The other thing is even the loyal customers get bored with the same place and taste. Restaurants, especially first restaurants, fail all the time.
Careful when everyone is giving stock advice
There is a famous story, in late 1920s when Joseph Kennedy listened to a guys shining his shoes offered him stock picks. He knew right then that the market was about to tank.
Impressive people misguide (Authority Bias)
People seem to think that a degree from a top university prevents its holder from failure and that’s one of the reason money managers fail.
Being attached to a formula (Be flexible if you see a winner)
The main reason the author didn’t pick up Costco and Starbucks was because they didn’t fit his GARP formula. GARP simply means growth at a reasonable price. A GARP investor looks for stocks where EPS growth is higher than the company’s P/E. It’s a great reminder to be flexible when you come across a once in a lifetime opportunity.
Find losers whose items are not selling
It’s a good idea to check if your company’s items are selling. If you see loads and loads of inventory that’s not moving. It’s probably not a good idea to invest in these companies. It makes the company a good candidate for a short.
Shrinking revenue and loaded with debt—recipe for failure
He gives an example of Idearc. It has shrinking revenues and was loaded with debt, but it was being run by a smart venture capitalist who was cutting costs enough to keep EBITDA look respectable.
When to short sell
Hold off until a failing company’s stock has lost at least half the value of its 52-week high before I initiate a short. It’s good to have enough downward velocity.
Never neglect noticing what customers want. J C Penny’s decline was a classic example where new management stopped giving the coupons, that customers liked.
Young, Affluent and Hyper competitive— usually a recipe for failure
The average Wall Street analyst or institutional salesperson is three things: young, affluent, and hypercompetitive.
It’s very important to know when to quit, which new analysts don’t learn.
Does the customer want it?
PlanetRX was selling medicine online to elderly customers. These customers were not tech-savvy and needed medicines immediately. Clearly, the customer didn’t want their services.
Overconfidence
Thinking you can’t fail is sure way to fail.
Can You Change Mind and Accept Failure?
Be the quitter; changing the boat is fine
The best money managers are also the best quitters.
Fail fast to increase your success rate
Want to increase your success rate? Double your failure rate.
Things go wrong more often
Failure is just an important part of a healthy economy. Companies fail more often than they succeed .
Admit your mistake and change
If you’re not willing to admit your own mistakes and misjudgments, you’re going to eat them for lunch.
Is industry changing? An example of blockbuster
Put simply, for almost anything more expensive than small luxuries like Starbucks coffee, most Americans shop on one thing and one thing alone: price. This is especially true when you’re talking about retailers selling identical products. If you’re stocking the same brands
Are you the lowest-cost provider?
It pays to be the lowest-cost provider in the industry.
Cons of short selling: you can only make 100%
When you are long on a stock, you can make many times your money, but with short selling, you can only make 100%, but there are more companies that fail than succeed.
Asset size is the enemy of return.