The Most Important Metric in Investing
Forget company valuation and price to earnings ratios.
Every ticker symbol you see on a stock exchange represents a piece of a business. The way to analyse any business is to first understand how it makes money. If you don’t know how a company you invest in makes its money, then you probably shouldn’t own it.
Here are 7 ways a business makes money
1) Asset Sale
Ownership rights of physical products are sold.
Example: Amazon’s marketplace for books and electronics is an example.
2) Usage Fee
Amount paid based on how much the service is used. The more you use the more you pay.
Example: Twilio, AWS, and Snowflake are some companies which charges based on usage.
3) Subscription Fee
Amount paid regardless of usage. Whether you use more or less, you pay the same amount every cycle.
Example: Netflix charges a subscription fee for your Netflix and chill sessions.
4) Lending/ Renting/ Leasing
This is the right to use an asset in exchange for a fee.
Example: Avis and Hertz rents out its cars, in exchange for a fee.
5) Brokerage Fee
Revenue generated from providing intermediary services to others.
Example: Interactive Brokers charges a commission fee for every trade made on the platform.
6) Advertising
Revenue from advertising a product, service, or brand.
Example: Google monetises by selling ad space (it helps that they hold a dominant 92% market share of search engine).
7) Take Rate
Fees charged when a transaction is made.
Example: Stripe collects a fee when a transaction is made on their platform.
Question
Any others can you think of? Leave a comment below.
What I’m Using For My Investments:
Crypto
FTX
This is by far the BEST crypto brokerage (in my opinion). Verification and deposit was fast (less than 30 minutes) and easy. The platform interface is user-friendly and easy on the eye.
Transferring crypto in and out of the platform was also a breeze.
Receive 5% discount on all your crypto trades when you sign up here.
Hodlnaut
I use Hodlnaut to stake my BTC and ETH (for 6.71% APY and 5.65% APY respectively). They offer some of the best rates for staking your crypto.
Get free 30 USDC (US$30) when you sign up and deposit US$1,000 worth of assets here.
Stocks
Interactive Brokers (IBKR)
I opened this about 1 year ago. The platform is not too user-friendly, but I like the charts they use to show historical returns.
Earn up to US$1,000 worth of IBKR stock when you sign up here.
Saxo
My first brokerage I opened to invest in the US markets. I love that they give a P&L breakdown, both on a monthly and yearly basis.
Earn up to S$500 per person (depending on your deposit amount). PM me on FB if you’d like to open an account and we can split the rewards.
Moomoo
My most recent brokerage which I opened, just to get some freebies if I’m being honest.
Get 1 FREE share (worth up to $1,000) when you sign up here.
TD Ameritrade
The charting software for TD is second to none. The platform even allows you to do backtesting and simulations. My only gripe is that they lack a P&L chart like Saxo or IBKR, making it hard to track your returns.
Note that TD only allows trading for US markets.