Unless you’re an investor who has been living under a rock you’ll know Afterpay Touch Group Ltd (ASX: APT) shares are probably the most ‘viral’ and polarising on the ASX.
Some bears probably don’t understand Afterpay’s retailer pays model, and many shareholders act more like social media bodyguards, defending it at every opportunity.
I find it quite bizarre, really. Surely the shareholders would be happy with the negativity so they could buy more? Bears are good!
But I digress…
1 Trick To Finding The Next Afterpay Touch Group Ltd Shares
Pat Dorsey was one of Morningstar Inc’s (NASDAQ: MORN) heavy hitters in terms of their research efforts before he started his own investment firm, Dorsey Asset Management. Like Peter Lynch, the great investor and author of One Up On Wall Street, Dorsey has some creative ideas about ways to go about doing investment research.
Lynch believed that ordinary people can outsmart expert stock analysts because they can get their boots on the ground. They could have, for example, headed to a Westfield Scentre Group (ASX: SCG) shopping centre and seen “Afterpay” dotted all over the walls of shops and young men and women stumbling over themselves for the “free” payment option.
Heck, I was in the sunny state of Queensland on a holiday walking through Port Douglas and spotted the Afterpay logo… was the universe telling me something?
Actually… pay with your bitcoin in 4 equal instalments. pic.twitter.com/MMBmt0hwdo
— Owen Rask 🇦🇺 (@OwenRask) February 3, 2019
Clearly, consumers and shoppers who were inquisitive enough to ‘spot the trend’ have been rewarded, with shares in Afterpay up more than five-fold in a few years. That’s what I’d call great boots on the ground research.
But back to Pat Dorsey…
Dorsey often speaks of something called “the value chain” to describe the way a product or service ends up in the hands of the consumer or end user. For a simplistic example, if you buy Aussie bananas from a Coles Group Ltd (ASX: COL) supermarket you may (though it may tricky) be able to identify how those bananas get to the supermarket. There’s likely a logistics company transporting the bananas from a wholesale or distribution company, which sources their bananas from a farm. The farm probably uses agriculture products, tractors, software and so on…
If you study the linkage of companies and service providers between the ‘product creation’ (bananas) and consumers (monkeys who eat said bananas) you can often find some brilliant companies. Oftentimes, the best companies operate in an adjunct niche (e.g. software, payment companies, etc.).
That’s how I first came across the company called Square Inc (NYSE: SQ).
A few years back I was eating a delicious burrito (from a food truck, where else?) and noticed that the magician (the food truck owner and burrito extraordinaire) used a payment terminal.
It was a little white ‘square’ which made it possible for me to ‘tap’ my ING Group (NYSE: ING) Everyday Visa (NYSE: V) debit card and get the scrumptious meal between my gums.
The owner used MYOB Ltd (ASX: MYO) as their accounting software — I’ll forgive them, on account of burrito.
Square’s share price has risen about 600% since 2016 as its business expanded vertically and horizontally. Unfortunately, like Afterpay, I didn’t buy shares in Square either. Shows what I know, eh.
Takeaway
Afterpay, Square, PayPal Inc (NASDAQ: PYPL)… the list of great consumer products which doubled as great investments goes on. This shows that if you not only pay attention to your favourite businesses, products and services but ‘follow the value chain’ you’re likely to uncover many weird and wonderful businesses to buy shares in.
If you want to know the names of two Aussie shares that could be the next Afterpay, access my free report below.
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