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Stock Market Defeats for Want of a Nail...

15 September 2006 - Features - Editor

Stock market pressures for quarterly results are so great that managements can get distracted from strategic issues. We investors are largely to blame for this and pay for the consequences as well! There is a case to ask for more questions related to the sustained competitiveness of enterprises, rather than to be excessively concerned about the recent past. Such thinking may hold the key to success in the turbulent times of today.

Securing supplies of critical materials is one of the strategic aspects which can have earth shaking effects on the fortunes of companies. This matter does not figure in statutory financial statements that every stock market requires, but investors should ask searching questions before they take shares of equity in such undertakings. People may have general knowledge of materials which companies use in large amounts, but there could be others below the radar, because they are used in small quantities, or used by suppliers in the chain of logistics. The matter becomes even more important if materials are in limited supply.

Minerals used in automobiles is a demonstrative example of the power of items used in small amounts to hold up the market share expansion and profit improvement efforts of juggernauts like General Motors. Almost everyone knows of the involvement of steel in making cars and other vehicles. It is also common knowledge that U.S. auto companies have severe problems of over capacity and squeezed margins. It is however, less well known that component manufacturers on which companies such as General Motors depend, have experienced run away inflation in mineral costs, and that they are dangerously dependant on China in this respect as well.

European and Japanese companies are better placed than their U.S. counterparts in terms of sourcing critical materials, and this reflects in their competitive power, product pricing policies, and bottom lines. It is time for stock market investors to change from the numbers game to searching questions on qualitative aspects of business, not just for auto companies, but for all sectors and enterprises.

 


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