Most people buy stocks based on whether the next quarterly earnings report will 'beat expectations.' However, buying stocks using first principles involves examining the following:
1. What is the theoretical end-state of this industry? (For example: All cars will inevitably become electric and intelligent.)
2. Whose technological approach best aligns with the optimal solution in terms of physics and economic efficiency?
3. Is the current stock price still being valued using an 'outdated map'?
If these three points hold true, fluctuations in between are merely noise, not risk.
ð€ Conclusion for investors:
Review the stocks in your portfolio and try asking three questions:
1. Is this company's competitive advantage built on being 'slightly better than competitors,' or on 'redefining the cost structure'?
2. Is this CEO explaining 'why we are as bad as our peers,' or discussing 'how we approach physical limits'?
3. Does this companyâs business model rely on 'information asymmetry' (arbitrage), or on 'maximizing efficiency' (value creation)?
ðIn the U.S. stock market:
Coca-Cola excels in top-tier analog thinking (brand, distribution channels, and mindshare).
Tesla, Palantir, and Amazon (in its early days) excel in first-principles thinking (deconstructing supply chains, data-driven decision-making, and pushing logistics to physical limits).
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