Helping you hustle more, earn more, & live more.

Join the ultimate hustle community — your go-to hub for the best side gigs, remote jobs, and proven ways to earn on the side. Explore the side hustle forum, discover real hustle ideas, share tips, and connect with others turning spare time into income.

Why I Focus on Business Quality, Not Perfect Math

When it comes to the world of investing, uncertainty is just part of the deal. To get comfortable with it, I always look to Warren Buffett as a guide. He has a knack for cutting through the noise. A phrase he often uses is that it’s good to be “directionally accurate.” He also likes to quote old-school investors, saying, “it’s better to be approximately right rather than precisely wrong.” For anyone interested in stock market investing, that's a powerful mindset to adopt.

Even though Buffett probably understands financial statements better than anyone alive, he knows how easy it is to get bogged down in the numbers and miss the bigger picture: a company's competitive advantage, or its “moat.” This is why he calls himself a business analyst, not a financial or securities analyst. The difference might seem small, but it’s huge. A financial analyst might think that numbers drive a company's success. But a business analyst understands that the numbers, the ratios, and the stock price all stem from the quality of the business itself. This is a foundational concept in stock investing.

Close Enough is Good Enough

While getting your numbers in the right ballpark is important when figuring out a company's earnings power, it’s crucial to keep things in perspective. The real goal is to find fantastic businesses with competitive advantages that will last. Once you’ve identified one, then you can work on a reasonable estimate of what it can earn. For those exploring investing for beginners, remember that this isn't about calculating things to the fourth decimal place. Earnings power is a useful tool, but it's an estimate, not an exercise in precision.

You can see how being “directionally accurate” works by looking at Amazon. Let’s say I estimated that its online business segment could achieve 10% margins. You might think that's way too optimistic. So, let’s slash that estimate in half to 5%, which is even lower than Walmart’s margins. That’s a massive change in assumptions, but its effect on the overall valuation is surprisingly small. It lowers the company’s earnings power by about 15% and bumps the multiple you'd pay from fifteen times earnings to eighteen times.

The Big Picture Is What Counts

Now, let's flip it. Maybe you think my estimates were too low. Perhaps you’ve used a different framework, like Bennett Stewart’s EVA, and after adjusting for sales, marketing, and R&D costs, you calculate that Amazon’s earnings-power multiple is actually twelve times. Again, it doesn't fundamentally change the conclusion. Whether the multiple is twelve or eighteen, the story remains the same: Amazon looks like a compelling buy. This kind of deep analysis is what is investing is all about; it's a financial hustle focused on quality, not just spreadsheets.

Looking back, my own projections for Amazon were indeed on the conservative side, especially for 2020. I projected 30% growth for its cloud computing division, which was spot on. However, with the pandemic driving everyone to shop from home, e-commerce sales grew by nearly 40%—double my annualized projection. In just a single year, Amazon's e-commerce business was already more than halfway to my three-year revenue target. This just goes to show how much more powerful a great business model can be than even our most optimistic financial models.

This pursuit of strong margins isn’t a new idea for them, either. In fact, if you go back and look at Amazon’s 2000 annual report, they stated a long-term goal for operating profits to hit the low double-digits. For anyone starting with stock market investing or looking for passive income investments, the lesson is clear: focus on finding a superior business first. The exact numbers can be a secondary concern.