Question

We all currently or in the future will participate or be impacted by the stockmarket with our retirement, the companies we work for or frequent with our purchases or those companies that bring us the latest technology to help us live a more comfortable life. Since I have been watching the stockmarket over 40 years ago, I've seen companies sadly leave but others have also arrived. Some of the largest companies in the US that no one would have ever thought would no longer exist or much smaller than it once was is an indication of how the returns of a company can impact its sustainability. If the company whether stocks or bonds cannot provide the returns investors require, the company will lose needed capital to help it sustain itself.

Comments?

Answer 1

Yes, how a company performs financially has a lot to do with its sustainability, as it has been seen historically. But we do have to consider the fact that most businesses in the earlier years were not privy to the technology and scientific understanding of the nature of work and automation as the businesses today do. We would get a counter-argument that the businesses in today’s day and age would not have access to the technology of the future, but we have t consider that not only the values of how business is conducted has changed, the considerations, the standards, and even the execution have evolved to a point where the need and necessity for technological innovation are appropriately understood. Most successful businesses of today would have been able to survive the time the earliest businesses did because not only would there be ni technology to support their sustenance, the fact that businesses were conducted on values and principles more than data and factual evidence could be attributed to another factor that separated the businesses in the earlier time from what we see today.

Now, with this understanding that the historical data, however large has comparatively less significant in determining the future, we need to look at the business model the most successful businesses have implemented.
We can say that it is the idea that sustains a business, we especially need to consider the future application of the business. For example, let us take UBER as the business and we want to invest in it because it is currently doing well. We cannot go into the past data that the company has shown as the only indicator, we need to evaluate the company and business based on how applicable it would be in the future. Let’s leap 10 years in the future and consider whether we still have a need for ride-sharing services when we most certainly would be able to evolve the technology to the point where cars would be self-driven (if we are being realistic). It does beg to question the efficacy of UBER in the future, but we can also consider that since UBER has the technology and its development at the heart of its core business function, it most definitely be able to foresee the shift and therefore, change their fleet of drivers to be replaced by self-driving cars in the future years.

We can consider a final example of how a successful business with great promise and high cash flow became obsolete as it refused to change with technology and how Netflix, a relatively new company was able to take over its market almost instantly. We can therefore not base our consideration one either past data or current cash flow, we also need to consider the premise of its core business idea and the applicability it has for the future.

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