Cash Flow Benefits for Stocks from Strategic Organic Growth (Part 1)
Organic growth of stock value is solely dependant on customer acquisition and retention. All productivity and creative moves of management reflect in this ultimate bottom line. It is a testing ground of nearly perfect competition, as clients of all categories and varieties make real time judgments of value deliveries. A stock investor who relies on organic growth is less likely to make stock trading errors than even the most accomplished private equity administrator who indulges in stock analysis based on merger and acquisition news. Unfortunately, compulsory disclosures by companies listed on a stock market, yield few clues about detailed trends in market shares, but there is much merit in making stock investing decisions on this axis alone.
Hidden Drains of Stock Value in Mergers and Acquisitions
Inorganic growth has major cost implications of which financial advisors may either be unaware, or even motivated to hide. The most extravagant aspects of mergers and acquisitions relate to lost opportunities, and to industrial psychology. Accountants have never found ways of quantifying such cash drains, and hence we tend to remain blissfully ignorant about them! Have you ever come across a financial advisor who tells you the actual pay-back period, Net Present Value, or Internal Rate of Return achieved by merger or acquisition by the supposed best stocks? The media are like butterflies, flitting around glamorous accounts of prospective inorganic growth prospects, but forgetting all about them once these large stock trades are complete.
Inorganic growth moves take both time and money. Negotiations, brokers, and due diligence, are all chased diligently at the cost of building sustainable strategic advantages. Both partners involved in Merger & Acquisition moves lose focus on customers, competition, and the market environment. Sometimes, these moves are purely speculative or even hostile, so the chances of successful endings may have low probabilities. However, the worst part of inorganic growth is the absence of accountability about rejected alternatives. There could be any number of internal projects as well as other external investment alternatives, for which minority stock investors are provided with no information.