Sam Walton always bought second-hand planes.
Cheap 2-seater planes.
They cost about the same as cars.
Sam Walton was the founder of Walmart.
Walmart is an American department store chain like D-Mart, More, Spencers, etc. It was founded in 1962.
Today, Walmart’s revenues are the highest in the world.
Revenue: ~$600 billion last year.
Walmart also owns Flipkart in India.
According to some people on Reddit, Sam used his planes to expand Walmart stores.
Early in the company’s journey, Sam would survey cities from the sky.
He would fly near cities that were expanding. From the sky, he would look at stores in the city.
Key indicator: number of cars in the parking lot.
If he saw lots of cars parked outside stores, he knew there was demand. He would open a Walmart store in that city.
He knew how to fly planes. He owned planes. So, he had information that his competitors could not get.
Using this unique information, he was able to expand his Walmart stores rapidly and effectively.
Satellite Imagery
Tom Diamond was the director of a consultancy based in the USA.
His company helped financial companies manage their investments.
Right after the 2008 recession, his company was not doing very well.
He visited his brother for a short holiday.
Tom’s brother worked at a satellite photography company. They mostly sold their images to government agencies.
One of Tom’s clients wanted to buy a factory in Malaysia. But they wanted to verify it properly before buying.
Tom’s brother had shared satellite images of the Malaysian factory.
Tom showed the images to his client – the satellite images showed the factory, trucks, workers, raw material, etc.
It helped prove that the factory was real and operational. It impressed Tom’s clients.
Tom and his brother discussed a new idea.
Satellite images were used mostly by government agencies. Tom felt financial companies could use these images to make investments.
They both started a new company.
They used satellite images to count cars parked outside the retail chains of various companies – McDonald’s, Walmart, Home Depot, etc.
They sold this information to big decision-makers in financial companies.
In one famous case, an analyst used their satellite images to determine that a company’s stock was undervalued.
Coincidentally, this company was Walmart!
They had used Sam Walton’s technique.
The story of how Tom Diamond and his brother started their satellite imaging company is a fascinating read.
You can read it by searching The Atlantic’s article titled ‘Stock Picks from Space’.
Research & Information
Before investing in a stock, research is a must. Every investor does research.
How far they go with their research is different.
Some investors do extremely minimal research.
They have an idea.
And they find something that loosely fits their idea. Or maybe they heard about the stock from a friend or on social media.
Example: ‘This stock has been going up for the last 8 months. Let’s buy it.’
(Obviously, this is not right. It is like driving forward while looking in the rearview mirror).
From there, things get interesting.
Some investors research one level deeper.
They analyze the company’s metrics. They look at its revenues, profits, and debt.
Eager investors go deeper.
They read its annual reports. They try to understand its cash flow.
Some even more eager investors realize that investment is not only about numbers. It is not just about the losses, revenue growth, and PE ratio.
It is also subjective.
Such investors try to understand how the business works; how that industry operates overall; and the external factors affecting the industry.
They read all the news about that company and industry.
For a big chunk of individual investors, this is where research stops.
But some more curious people continue their research.
Such investors realize that companies do not work in isolated worlds; that companies are actually a part of a larger economy – states, countries, and continents.
Those geographic regions affect the economies. National and international politics affect economies.
So they try to learn more about that.
Somewhere in the investment journey, investors realize that there’s another huge factor affecting investments: they themselves.
We human beings are biased. We are not always rational or logical. That is not good for our investments.
So investors try to educate themselves about psychology, about their biases, and the mistakes that they might commit.
Thinking deeply, many investors realize that worrying about risk is also important – not just returns.
They research ways to reduce risk – topics like diversification, asset allocation, and volatility occupy their minds.
There is no one single strategy to invest. There are many strategies.
Investors develop a liking for different strategies. Their strategy also determines the kind of research they do.
Different strategies require different kinds of research.
Value investors care about how overvalued or undervalued a stock is.
Growth investors care a little less about current profits and more about how fast the company is expanding.
Momentum investors care more about the stock price and the trading volumes.
Arbitrage investors care about the difference in prices and not much else.
High-frequency traders care about reacting extremely fast. They want every news before others. Their strategy depends on being first.
In the stock markets, information is crucial.
A lot of information is easily available.
A lot of information requires some effort to get.
A lot of information is extremely hard to get.
Fascinating Ways of Research
Just learning about the ways in which stock research is done by some firms can be very fascinating.
Investment firms are using satellite imagery to look at shipping containers, trucks, ports, oil refineries, parking lots, etc.
Using something called ‘sentiment analysis’ on X (earlier called Twitter) is actually a well-known technique.
They measure the general mood (anger, happiness, hopelessness, etc) of a large number of social media users – and make trades based on that.
Reports suggest some hedge funds use artificial intelligence to analyze the speeches of politicians, policymakers, and corporate leaders.
They are able to determine if an announcement will be positive or negative.
They place trades accordingly.
There are many sources of data: footfalls, temperature, activity in cities, traffic information, parking, electricity consumption – the list is endless.
More is Not Always Better
So far, it might seem like an individual investor can never have enough information as the big organizations.
They have more information.
Yes – but that’s not always better.
Many investment strategies work very well for all kinds of investors – small or big.
Generally speaking, long-term investing is easier.
The information needed is available more easily. Investors also have a lot more time to research and make better decisions.
And if this seems like a lot of work, you can consider leaving your money with mutual funds.
They have access to vast amounts of information and have large teams to analyze the information.
They might even use expensive information collection methods like satellite imagery.
Generally, the shorter the period of investment, the more difficult it gets (for most investors).
In our internet age, it is easy to feel intimidated by the sheer amount of information available.
We might feel like we do not know enough; and that we need to research more.
It is important to research properly.
But it is also important to know how much research is enough.
It comes with practice.
Many new investors ask, ‘How to research stocks?’.
This digest might help understand why that question is so difficult to answer – because there is no right way to research.
Investors have to try out things and see what works for them.
They must learn what style of investing works for them.
Based on that, they have to learn the best way to research.
And when to stop researching.
Quick Takes
+RBI announced the yield rates for its new government securities; for 10-year it is 7.1889% (maturity in 2034), and for 50-year it is 7.3338% (maturity in 2073).
+The Bank of Japan kept its interest rates unchanged between 0-0.1%. Yen dropped to its 34-year low to 156.1/USD.
+Google’s parent company Alphabet announced its first-ever dividend of 20 cents per share after reporting profits for the previous quarter. It also announced a $70 billion buyback of stocks.
+Swiggy has reportedly received approval for its IPO from its shareholders. The company plans to raise Rs 3,750 cr from new shares and Rs 6,664 cr through an offer-for-sale (OFS).
+India’s direct tax collection increased by 17.7% to Rs 19.58 lakh cr in the financial year 2024.
+Indians ranked 2nd in the list of new US citizens. 65,960 Indians became US citizens in the financial year 2022. Mexicans ranked 1st.
+India was the 4th biggest spender on military in 2023. The United States, China, and Russia, were ahead in the list: SIPRI.
+China’s central bank has kept its lending rates unchanged at 3.95% (5-year loan prime rate).
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest