Mastering the Fundamentals of Investing: 8 Key Concepts to Understand

Reading Time: 1 min read

The seven key investing concepts mentioned in the video are:

1. Lifetime Gross Profit (LTG) to Customer Acquisition Cost (CAC): This ratio shows how much profit a customer generates over their lifetime compared to the cost of acquiring them. A high ratio is desirable.
2. Lifetime Gross Profit: This is the profit generated by a customer over their lifetime.
3. Cost to Acquire a Customer (CAC): This is the cost of acquiring a new customer.
4. Return on Invested Capital (ROIC): This measures the return on investment in a business, including the cost of acquiring new customers.
5. Payback Period: This is the length of time it takes for a new customer to pay back the cost of acquiring them.
6. Sales Velocity: This measures how quickly a business can sell its products or services.
7. Churn: This is the rate at which customers leave a business.

The bonus concept, Total Addressable Market (TAM), is the total potential market for a product or service.

The key takeaways are:

• Knowing these seven metrics is crucial for understanding a business's health and potential for growth.
• A high LTP to CAC ratio indicates a profitable business.
• Payback period is an important metric for understanding cash flow.
• Sales velocity and churn are important for understanding a business's scalability and retention rates.
• TAM is a key concept for understanding the potential size of a market.
• These concepts are important for both business owners and investors.

The video also emphasizes the importance of understanding the risk associated with a business, including the risk of customer acquisition, competition, and economic trends.

Source: Million Dollar Equations, Alex Hormozi