CHOOSING WINNING STOCKS: QUALITATIVE VIEW

A company is a lot more than its figures and numbers. In order to make a good investment, you should look at other factors that affect the company’s overall performance to figure out its qualitative value.

Qualitative analysis is part of the critical research one must carry out before locking in hard earned funds into a company. It is part of the fundamental analysis that explores parts of the company that cannot be explained with numbers. Research plays an important role in picking good companies to invest in and while conducting qualitative analysis of a company, most investment professionals look at its management team, business model, competitive advantage and corporate governance. This way they are able to discern whether a company Is making any profit or not. It also helps understand how they treat ordinary shareholders like you and I. With all the data gathered, one can better understand how a company intends to grow its business and reward its shareholders.

The center point of any business is its people composition, in this case, its management board. Who are the people that comprise the board and what have the decision trends been? These are the big decision makers and are the ones that make or break the company. Who are they? Are they transparent in their dealings? Do they have good educational and management background? How long have they been on the board? Were they hired because of past achievements or family ties?

To further analyze a company’s qualitative factors, one must know all products and services it offers. You have to find out how they truly generate revenue and why it is profitable. Take for example a few years ago when the stock market became popular, a lot of people bought stocks without even understanding what the companies did or sold. This phenomenon is called herd mentality, when people bought huge number of stocks because of the temporary rise and popularity of these companies, which in turn burned them down and led to a market crash. Sometimes flocking with a group of people who also want to invest may not necessarily be a good idea, as the blind cannot lead the blind. Do your own personal research before you proceed.

Asides focusing on the company itself, look at other side characteristics like its current and future competition. Consider questions like: is there room for growth in that industry? Do they have a giant rival company? How popular is the company? Do they have any governmental back up? Would they withstand the test of time? Is there a possibility of other companies playing in the same industry space soon? Who is their greatest competition? Answering all these will give you a clearer perspective of the company’s future potential.

You should also look at the brand the company offers, as a good brand reflects years of good marketing and strategic business development. You could mention a brand name and no one would know that name, so what does that tell you? Should you still invest in unknown brands? Take for example the Pampers brand and Indomie, these are well known brand names in Nigeria that have stood the test of time as against Shola super noodles or Otueke Juice. Which would you rather invest in?

In conclusion, a company is a lot more than its figures and numbers. In order to make a good investment, you should look at other factors that affect the company’s overall performance to figure out its qualitative value. Looking beyond the sales and earning figures is probably one of the most effective methods to evaluate a potential investment.