Man, Look before You Leap
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While making an investment decision, one is confronted with the question of choosing the right industry sector or company to invest in. The choice one makes in this initial step of investing is critical in the outcome of the investment. There are many industry sectors and subsectors. And within each sector or subsector, there are several companies doing business. A look at the list of companies traded at any of the major world stock exchanges tells us that there are always some who see investment merits in any given company in any given sector traded in these exchanges. Choosing the right company is more critical than choosing the right industry sector. The airline industry was once a growth sector. But most airline companies, during that time, apparently did not really make much money for their shareholders. On the other hand, one can still find growth company with good earning power in a declining industry sector. Having said that, it is not, however, totally right to be unmindful of the industry sector while making investment decision. Commodity cyclical, for example, has the tendencies to rise higher than most during economic upswing and fall lower than most during downturns. Therefore, understanding point of time in the economic cycle will be an important factor. Besides, it is the supply and demand constraint which is the major price determining factor in commodity industries. Anybody in fossil fuel business will tell you that. Anyone paying attention to oil and gas industry would have noticed the roller-coaster ride of the crude oil price in the last few years. Talk of a hurricane developing in the Caribbean Sea, sightings of Nigerian rebel troops in the Niger delta, or rumor of OPEC cutting or increasing oil output, or some bare-chested president thumping his chest and for that matter anything and everything that is perceived to have the potential to disrupt supply can affect price of crude oil. As for me, the kind of company to kill for is a company which operates in an unregulated sector; it is the sole producer of an essential item; it has an effective cost cutting policy in place; it has the right to set product-price at will (Without ripping off the consumers, though); it has a little or no debt; it has innovation in mind; it is a company whose executives do not get unwarranted hefty bonus while neglecting the interests of the shareholders (if I left out any other points, please leave a comment). Ready to jump? First, look for a spot to land.