Tuesday, February 3, 2009

Build a Super Investing Habit for Future Wealth

Investing to the best companies for long term is the most common but valuable mantra that investors frequently reading when going through the biography of legend investors or reading any article written by them. Lots of investors attracting to this mantra and selecting some companies they think that is the best to invest, and investing to it. Unfortunately, most of them fail to fetch required results. What was the fault happened to such failure after selecting good company carefully as per the advise from successful investors?

Identifying the error will help you to avoid such mistakes in the future. Below are some points to keep in mind when hunting for a good company to invest. Before coming to these points, I would like to remember you that successful investing is not a rocket science. But this is the game of common sense and little above from average numerical skills.

At the very first, We are moving to the investment strategy of Warren Buffet. As per his winning strategy, someone should prefer a company who has excellent ‘durable competitive advantages’ for their products. In simple words, such company should have monopolistic business advantages and that probably leave no or little room for any competitors to enter. Also, the product from such company should have huge customer base across the nation with a strong feeling among people that they cannot survive without such products. For example, Coca Cola is a product from such category.

Second, investor should invest on a company that have huge marketing base but not spending investors money for extravagance like sponsoring territorial shows or programs. A real cost effective but very effective advertising method can be identified immediately if you give little attention. For example, we can see a mainstream advertisement but the same translated to all the possible languages to build perfect base among customers with cost effective approach.

Third, always get away from a company that has internal managerial competitions for higher designations or any such problems. The well meaning of this will be a company that should have capable management to apply innovative thoughts to maintain the monopolistic positions in the market always and add more value to investors money.

You should consider the financial side of a company as well, prior to invest. From the wordings of Warren Buffet, the company should be having consistent ROE of 20% or more. It should be the one who have less production cost compare with its immediate competitors. Operating cost of the company is an important fact to identify how the company going to survive in the bad time where the price of their product or service forcing to decrease or how they building good cash balance to divert their business to new areas or improve present business. At last, a company should be free from debts or have very less, manageable debt.

It is a truth if you consider all the above mentioned points carefully before select a company to invest, I am sure you required to work hard to identify a worthy company.

As a bonus, once you find a good company that is suitable to invest in the context of all the above mentioned advantages in its maximum, never forget to invest a considerable amount to get maximum possible future benefit.

This is a guest article from Sherin Devassy, a finance and investment blogger with personal blog “The Money maniac

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