Part 5: Wanted: a company build like a stronghold

How to pick company stocks?

Make the difference based on the public information made available by the companies and subjecting it to the right questions.



At most companies, you will never see what’s behind closed doors. This is different with listed companies. Due to their public listing, a company relies on public savings. On your and my money.

Because everyone can become a shareholder at any time, publicly listed companies must inform the public frequent and transparent.

At least once every six months all their figures are thrown out on the table. Often they do more than that and they help you better understand their business strategy.

This offers investors the chance to follow listed companies more critical than the ordinary, private companies. Few citizens know of this democratic aspect of the stock market and, unfortunately, neither are many politicians. In a smaller stock exchange like many smaller countries hold, only list a hundred or so companies. For a novice investor that is enough.

Listings aren’t everything

Stock exchanges list the larger, ambitious companies. A listing, however, isn’t a guarantee for anything. A listing can take companies to a higher level. Thanks to external shareholders there is more pressure to keep growing. pay attention that a company isn’t going for the short-term solutions. These short-sighted solutions taken under pressure from the shareholders might not be the best for the company in the long run.

As an investor, you can make use of market analysis and advice given by specialists. But don’t be afraid to do the research yourself. Dive in the wealth of information that listed companies publish.

A good investor relations department will give you insight into how the company evolves, the results and the market, the products, the strategy. A solid tip is to read the preface written by the chairman or CEO (Chief Executive Officer) in the annual report and receive a quick a global and updated examination of the company. See also preface of previous years. You are the shareholder, remain critical and be confident at the same time.

In which companies should you invest? Adhere to the following two principles:

  1. Focus on the longer term. Try everything to have a view of at least a few years. This is not easy, this will save you from pitfalls called short-term evolution.
  2. Focus on positive change. Everything hinges on structural improvement. A fantastic company that evolves into a good company, will usually be a bad investment. A moderate company that improves itself, will be profitable.

What could be better?

After you have adhered to the aforementioned two principles, ask yourself four questions:

  1. who is the main shareholder? A family-run business is more stable, more cautious and in the long-term usually better for the small shareholders.
  2. Who are the CEO and the management? Their skill and dedication are crucial.
  3. Does the company have something akin to a moat? Like a castle’s moat protects it against intruders, so should a company have a strong, unique advantage to protect itself against adversaries. Else a company might achieve exceptional results, but not maintain them. This is because profits lure more competitors. That figurative moat can comprise patents, a solid reputation, or a strong brand. Often it is a combination of factors, wherein scale, low cost and way of working play a role as well.
  4. Can the company’s profit, and better yet – its turnover – grow? A company that can hold its ground for decades, will have to adjust and sometimes even reinvent themselves regularly. Those companies, which in many cases are a market leader, can have a slump, or a setback, but they usually come back (stronger). Those are shares that you can keep for a very long time if ever, have to sell. International examples include Berkshire Hathaway, Microsoft, Apple, GE (General Electric) and many more.

Remember

  • Public companies must publicise their financial health at least on a bi-monthly basis.
  • Just being listed doesn’t mean it’s a stable or healthy company. Do your own due-diligence. Educate yourself about the companies you are interested in.
  • Ask the right questions: Who are the main shareholder, the CEO and the management? Does the company have something that protects themselves? Can it find something to create growth?

Can you time the market? Is there a way to consistently enter at the low and exit at the top? You’d think it’s possible, how else do some investors achieve their amzing results. Continue to Part 6: A consistent calculated path to wealth to learn more about market timing.