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It’s All about the Material!

When I was younger my mother would excitedly ask me to guess how much she paid for a sweater that she had bought from the store. My mom was, and still is, always looking for bargains. I would guess an absurdly low number. I would exclaim “I don’t know, 15 dollars?”. However, I was dead wrong.  She would contort her face and say, “Come on Rahul, feel this material!”. Then, I would gently rub my hands over the fine soft material and raise my initial estimate 40 dollars. She happily replied, “No Rahul, I bought this cashmere sweater that was 50% off! Usually it is $65 but I got it for $32.50”.

 

Interestingly I remember these stories fondly when I am valuing stock investments. Often times inferior quality companies trade at cheap prices and great companies trade at a premium. It’s tempting to buy the so-called cheap stocks but I always tell myself “It’s all about the material”. If I can buy a superior quality company at 50% off it’s a much better deal then buying the lower quality company that is always cheap even if you have to pay a little bit more.

So the next time you go shopping, albeit for clothes or for stocks, remind yourself as my mom reminded me, “It’s all about the material!”

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