5 points before investing : This article covers the 5 points that every intelligent investor check before investing in a stock. With the help of this points intelligent investors try to find any stock’s qualities that give extraordinary return in future.
Table of Contents
5 points before investing- Point 1:
Have company’s products and services the potential that can give good sales growth in next some years? It is not hard to gain huge for one time. For investors one time profit does not matter,consistent growth is the matter. For example in US sales growth of radio manufacture companies was well before coming tv but after coming tv the sales growth of radio manufacture companies was fully stopped. According to Philip A. Fisher companies that grow constitently can be dividedin two groups and they are:
- Fortune and Able.
- Fortune because they are Able.
Any company can not grow constitently year after year on the basis of luck. They need excellent business skills, otherwise they can not maintain their strong performance. Example of Fortune and Able company is Aluminium Company of America(also known as ALCOA). The founder of alcoa was very visionary. He launched his products with future planning and future requirements. Otherwise anyone could not imagine that the market of aluminium products would become so wide in future.
Because of it alcoa become huge profitable. Example of Fortunate because they are Able is Du Pont. Du pont primarily was a blasting powder company in starting days but with the help of excellent business skills and financial judgement skills du pont company increased the sales growth. The knowledge of making blasting powder helped them to launch new variety products in market.
They wrote their success story making this products succeed. Because of able du pont conpany became fortunate and wrote their success story in chemical business. After seeing this two companies it is cleared that company’s management plays a great role in their success story. Otherwise sales growth can not grow continuously. After this to continue the sales growth some radio and tv manufacturing companies stepped into elctronic fields. They started to manufacture communication and automation equipments with their elctronic skills. It helped them to generate a good sales growth. Motorola did the same thing. Other electronic equipments of motorola generated more sales growth than tv. In this way using resources and skills Motorola continued sales growth for long term.
5 points before investing- Point 2:
If company used the full growth of current products of company then have company’s management the determination to develop their products and process to grow their sales potential. If company performs good for their existing products then it is good but if company wants to continue their performance good in long term(20-25 years) then they should improve their old products and develop new products simultaneously. You may think that point 2 is the repeatation of point 1 but this is not. Point 1 is about sales growth and point 2 is about management’s attitude. Any company should aware when to step into new market and when take the full advantage of current products to cover the market.
5 points before investing- Point 3:
Has the company a good profit margin? Sales growth has imortance then if sales growth of any company converts in profit quite. It will not be a good investment if company’s profit can not grow parallel with sales growth. So when you analyze company’s profit you should check company’s profit margin. If company has the sales of 100 crore rupees and profit of 10 crore rupees then the profit margin of this company is 10%. You should check the profit margin of past 5-6 years.
5 points before investing- Point 4:
In which point of view does company see the profit either short term or long term? Some companies have the focus of quick profit. On the other hand some companies have the focus of making customer’s goodwill without making quick profit. Company makes a good relationship with suppliers and giving discount to the regular customers to develop goodwill. Company helps the regular suppliers if they face problems. As a result company’s profit is affected but it will prove good for company in long term.
5 points before investing- Point 5:
Is company’s management honest? Management of some companies takes the advantages of profit for them or their family in different way. But as a result shareholders are affected. So before investing you should check does company’s management follow the ethics and have you believe on them? These are the first five points. These five points are taken from ‘Common Stocks and Uncommon Profits’, written by Philip A. Fisher.
If you have any query related to intelligent investor please comment below so that the topic can be covered. Best wishes to invest. If the post helps you please share the article so that other can know about it and leave a comment.
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