I don't get much time to just sit around and watch TV, but when I do my favorite show is Dragon's Den. Why? It's a brutally simple way of looking at a business - what's it's cashflow and how am I going to make money!
I missed watching it last week, but fortunately CBC airs the previous weeks episode on it's web site. I sat down and watched it tonight - and what caught my eye? A Board Game called Day Trader.
No, it didn't catch my eye because it has the potential to make gobs of money. It purports to be an education-related game that teaches people about the markets. From what I saw - it doesn't. The Dragon's never touched on it, at least not that was broadcast, but I'm sure a big part of it was that it actually perpetuates the myth of investing.
The idea that "the markets" and investing is no different than a game of chance goes to the heart of why so many people are unable to make money investing. Successful investing is about finding companies that have real earnings and are going to pay those earning to their shareholders.
In the words of Jerry MaGuire's Rod Tidwell... SHOW ME THE MONEY!
The model is simple: A company makes REVENUES - from those revenues it pays it's expenses. After expenses are paid, there's PROFIT - a company can choose to pay some of those profits to it's shareholders (Dividends) or re-invest it back in the company to INCREASE it's profits.
What I want to see is HOW a company makes it's revenues, how it controls it's expenses, and what it's profits are! Then, I want to know if management is going to pay me those profits, or if they think they can make me more money by putting it back in the company. Warren Buffet has NEVER paid a dividend, but has been able to consistently re-invest profits to make me MORE MONEY!
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