ROIC: Return On Investment Capital

From: Ameen Kamadia

In this issue, you get a two for one offer: an investing lesson and a marketing lesson.

It all starts with my Dad. You see, he is thinking of retiring from the mortgage business and is looking for something to do in retirement, besides sitting around at home. (He doesn't play golf.) So he has been going to some of the stock investment seminars advertised on TV. At one such seminar, the presenter mentioned a book called Rule #1 by Phil Town. Dad bought it and I picked it up from his library.

The book is basically an explanation of Warren Buffet's investment philosophy with some financial tools thrown in, to create an investment formula.

The philosophy is simple. The author says that any stock you consider buying has to pass the test of the 4 M's. They are:

Meaning: You must understand what the company does, and must like what the company stands for. You must be willing to invest in this company as if your family's livelihood depends on it.

Moat: The company must have some competitive advantage over its competition.

Management: The company must have management that cares about the company more than about their salaries and quick profits.

Margin of Safety: You must be able to buy the stock at a price at least 50% lower than the book value of the company.

For more clarification on these principles, either pick up the book or any other book about Warren Buffet's investment style.

Now we get to ROIC. ROIC stands for Return On Investment Capital. In other words, it is the percentage of return you have made on your investment. The higher the ROIC, the better. According to the author, we should only consider investing in companies that have a ROIC growth rate of at least 10% a year.

Having a good ROIC growth rate, over 10% a year, also tells us that the company has a good Moat. If the Moat starts to get smaller or competitors cross the Moat and attack the company, the ROIC will suffer and we, as investors, will be alerted that there is a problem with the company.

That is the investment lesson.

Here is the marketing lesson.

Notice how the ROIC tells us if the company has a Moat (competitive advantage), and the better the advantage, the more money the company makes for its owners.

You as a loan officer or mortgage broker are also a company. You need to determine your ROIC. What percentage return do you receive on the money invested into your business?

If you want to increase your ROIC, and thus make more money, you need to improve your Moat.

In our world, the word Moat is another name for USP (Unique Selling Proposition). Not only do I say it, but Warren Buffet is indirectly backing me up when I say that you need to have a USP to make more money.

I go over in detail, how to create your own USP in my Jump Start Your Mortgage Career E-Class, and if you need help creating your USP, I suggest you check it out. The sooner you do, the sooner you can start earning a larger paycheck.

Here's an example: To take advantage of the recent boom in foreclosures, I have decided to go after this market. My USP is, "I help homeowners avoid foreclosure." It's simple and it tells what I do. We actually provide 4 alternatives to homeowners, not just refinancing. If all I did was refinance I would use, "I help homeowners in foreclosure refinance their loan to avoid losing their homes."

USPs seem simple to create, but they are anything but. In fact, the lesson on USPs in my course is the most difficult, but I believe the most important. If you don't have one, there is no reason for prospects to judge you on anything other than price. And fighting over price is no way to run a business.

Happy Originating!


Bookmark:


 

Comments

Add Your Own
Your Name:
Comment:
captcha
Word Above: