Investing in stocks -Part 2

Today we look at two factors affecting one’s decision on whether to buy a stock or not.  The first is the history of the company especially as it relates to how long it has been in business.  If a company, for example Bank of Nova Scotia, has been around for more than a century then it demonstrates that it has the ability to weather the various challenges that have come its way during that time.

There have been two world wars, the great depression, natural disasters and many other events that created significant obstacles to surviving.  If a company is able to go through these turbulent periods intact, then it adds to the credibility of the company as to the long term future viability of the company.

The other side of the argument however is that sometimes companies that have been around for a long time become set in their ways and do not change to meet the threat from competition or changes in technology.  The modern company today must have the requisite technology and adequately trained employees in order to face the trials of this highly competitive world.  If a company is not upgrading its systems or training their staff, stay away from investing in it.

Although history is a useful measure of a company’s viability, another factor to consider is branding.  Here we are talking about how the company’s brand i.e. products and services, are seen by the consumers.  In this respect, a company does not necessarily have to have been around for a long time to establish a good reputation although having a history helps to establish a brand.

In Jamaica, we can look at the example of Digicel which in the space of one year obtained over one million subscribers and established a reputation of being the best cell phone network in the country.  The response of then Cable and Wireless was to continue to offer an outdated product operating on an outdated system resulting in a significant loss of market share.  This was a perfect example of a company not responding to the threat of competition.

In the next part of our series, we want to start looking at the financial statements of companies.  I encourage you to send in any questions that you have so that we can address some of them in this series.