Essay on Is a Good Company a Good Investment?

Submitted By ecole01
Words: 497
Pages: 2

Is a Good Company a Good Investment?
If a company experienced rapid growth in the recent past, it is likely that the expectation that the growth will continue may already be incorporated into the price of the stock. For example, if the market expects Company X to grow much faster than Company Z, the stock of Company A may trade at a much greater price/earnings ratios than stock of Company Z does. Whether or not stock of Company X turns out to be a good investment really depends on whether the future growth will be faster or slower than what the market already anticipates.
Make sure the fundamentals of the company (current price, profits, good management, etc.) are the only reason you are investing. Anything else is based on your emotions; this leads to speculation rather than intelligent investing. You have to remove your feelings from the equation and select your investments based on the cold, hard data. This requires patience and the willingness to walk away from a potential stock position if it does not appear to be fairly or undervalued. (About.com)

According to Peter Antunovich and David Laster in their 5 year analysis of “Fortune magazine’s annual survey of “America’s Most Admired Companies” for 1983-96 finds the opposite” that if the stocks are held for 5 year or more they least admired company stock did better than the most admired company stock.
A look at a real life example, a company that looked good on paper but was not a good investment.
By 1993, Enron had set up a number of limited liability special purpose entities that allowed Enron to hide its liabilities while growing its stock price. Analysts were already criticizing Enron for "swimming in debt," but the company continued to grow developing a large network of natural gas pipelines, and eventually moving into the pulp and paper and water sectors. Enron was named "America's Most Innovative Company" by Fortune for six consecutive years between 1996 and 2001. (Folger, 2011)
In…