There are many suitors on the stock market for your precious capital! How do you choose? Each major stock market has thousands of companies listed, and some Exchanges now encourage international investors, so the alternatives are bewildering! How about new angles on financial statements to take searching looks at how companies source and use their existing funds?
Customer advances are sure winners! Any company which is able to attract funds from customers before delivery of goods and services is an attractive destination for your funds. Engineering companies with busy order books, service providers who ‘reserve’ market share with creative loyalty schemes, and realtors who can rake in cash with the very announcement of new projects, are examples of the best picks on this basis.
Competitive generic business lines will not allow customer advances, but funds from the distribution network are good indicators of the best companies in which to invest. Traders are willing to pay hefty deposits for the privilege of dealing in top brands. Look for the accumulation and growth of such funds in company balance sheets. They validate management statements about their future prospects, or prick holes in them!
Information on the share-holding pattern of a company can yield reams of advance insights in to their risks and opportunities. Does a professional investor with quirks have a significant holding? Might this entity suddenly abandon the stock, affecting your capital? Is a competitor creeping up on to the Board with an obvious angle on acquisition? Think through on the motivations of everyone who has a significant block of a company’s shares!
Ageing of inventories and receivables, exchange risks, hedging on futures of oil and other commodities used in large amounts, personnel and selling costs, and investments in R&D are other parameters which can give a different but accurate picture of company performance, and likely fortunes in the future.
What do you think? How do CFOs and other Finance professionals build their own portfolios? Every successful stock market operator is not voluble with a high public profile, but the reticent sometimes hold invaluable secrets!
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