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Back to Entrepreneurial Schools to Revive Flagging Stocks (Part 1)

30 January 2008 - Features - Editor

Should the adage of history repeating itself not apply to stocks? Regression analysis has become rather archaic in cutting-edge stock investment technology, but the cornerstone events of stock market history are worth revisiting in order to derive lessons for the future. No stock exchange has ever functioned without encountering irrepressible volatility, so interregnums of relative calm offer the best hopes of productive reflection. OTCBB and even PK stocks can sometimes provide ideas to executives responsible for large corporations, because success and failure, growth and stagnation, as well as profits and cash drains are all tantalizingly close to each other!

Business management scholars have identified venture potential and team quality as the two most crucial factors for success in the enterprises represented by listed stocks. The venture potential has a more telling effect on financial planning, for what use is the best team without a relevant product or service at a feasible price? Customers are notoriously fickle in their choices, so woe betides the stocks of any company that thinks it can take its market share for granted! The stock market is like a ship with ever-changing horizons, and neither investors nor managers can afford to rest on their laurels. There is never a moment to lose as a stock struggles to ride out a trough, but no ascent or crest is stable either. This makes stock investment fundamentally different from acquiring more staid assets such as realty and gold.

Fundamental Management Tasks Never Change Even for Top Stocks

What is the most telling difference between stock investment decisions by professional financial institutions, and a casual stock trader who is content to make a dime before close of each working day? The media and amateurs are full of numbers, charts, graphs, and excuses, while finance professionals focus on understanding management prerogatives and the implications of discretionary decisions. Stock value is not hidden as much by regulations as by executives making incorrect judgments, being distracted from their core purposes, and by failures to build contingencies against improbable risks. Have you ever heard of stock brokers discussing the management moves that can change stock price trends, rather than the degrees of their climbs and falls?

There are no statutory straight-jackets to force qualitative accountability by executives, but reputed credit rating agencies, professionals responsible for private equity, and academics from business schools, inevitably reflect carefully and in detail, on what management teams do, as well as on the matters they ignore. This is why there can be wide gaps between individual stocks from the same economic or industrial sector. The quality of management, esoteric as it may be, makes the defining difference between healthy returns on stock investing, and miserable results from stock trading.

Back to Entrepreneurial Schools to Revive Flagging Stocks (Part 2)

 


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