Recently I started watching shark tank and I was suprised to see how much I could relate to investing.
The sharks on the show who are looking to invest in a idea are all businessmen who have made money running a business.
These sharks are good at investing because they are good businessmen.
This reminds me of a quote from buffett.
This is a show where we get to see and learn from successful businessmen analyze a company.
Questions the sharks ask and how we can apply it to investing:
- How much is the sales ?
This is the first question they ask and rightly so. As investors we want to look at a companies that are growing their sales.
- Why do you need our money ?
This question actually answers a lot about the business. Because business with rich cashflow and that are less capital intensive would not need cash.
They probably want a srategic partner to help them scale which is what all good entrepreneurs look for in a shark.
If we ask this question to ourselves everytime we want to invest in a stock and the answer we get is that the company does not need our money then its a great business to be in. A company that is buying back stock and is generating ample cashflow would be one which would be a good investment as against a company that is always raising money by diluting equity and is in constant need of money while its sales keep decreasing.
- How much of your money have you put in the business ?
I think this question would help understand if the business is setup with just other peoples money or the entreprenur also has his money in it.
As investors we can apply the same principle by looking at how much of the companies stock the insiders own.
We can also learn a lot by their reasons for not investing in a company.
- I like you but I dont think the business is worth that much valuation.
Takeaway for an investor is no matter how much you like the CEO , if the valuations don't make sense then its not a attractive investment.
- The product tastes great but I don't think I would like to invest at this time as you are drifting away and your revenue per sqft has gone down.
Takeaway for an investor is no matter how good the product is if the business is not scalable it does not make sense.
- I like you but I don't think I can contribute much to this business.
Takeaway for an investor is no to invest in companies where you don't have a edge or if the business is out of your circle of competency.
- I like the business but I don't think I can make enough money on it.
The takeaway here is to not invest in a low margin business where we cannot make much money.
Watching the show we get to learn a lot about the various business that are out there and what margins these different business have.
Recently saw a interview of one of the participants of shark tank on bloomberg, his company makes a app that takes panoramic photos & vidoes handsfree.
you can watch that episode on youtube here http://www.youtube.com/watch?v=jeZhnEHOMzY