Choose Investments That Are Fruits and Not Vegetables

Tomato, To-MA-to, potato, po-TA-to! What is the difference between a fruit and a vegetable? Are cucumbers, olives, and eggplants considered fruits or vegetables? Fun fact: They are actually part of the fruits family.

The key difference between a fruit and a vegetable is that fruits have seeds. Fruits have the ability to plant their seeds elsewhere and these seeds can then grow into more fruits, replicating the cycle over and over again into further and further reaches of the land.

Why am I talking about fruits and vegetables here? This is because we ought to select investments that are like fruits and not vegetables. The companies that we select should have the ability to repeatedly plant their business seeds in other markets and grow them over and over again.

A company such as Sheng Siong Group Ltd (SGX: OV8) may be considered as a fruit-like investment. The company runs supermarkets in Singapore. It has its procurement sources and distribution networks all setup. It can open more supermarkets across the island to grow its market presence, similar to scattering seeds across different lands and observing which seeds can grow into mature trees.

A company like SBS Transit Ltd (SGX: S61), on the other hand, operates in a regulated industry. The bus and rail services provider cannot plan its own growth path – it has to bid for routes that the government is tendering out. It can’t plant its seeds repeatedly and that’s why such companies may not be considered as fruit-like investments.

So when we are analyzing a company, we have to think about how it can grow in the future. A company with a business model that it can easily replicate can spread its seeds far and wide, giving huge growth potential for investors. Companies without such a business model might not be able to control their own destiny and grow their business significantly.

Choose investments that are fruits. It will benefit you.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.