Selecting of Companies That Fit Your Investment Personality

 

Companies aren't all alike. for instance , what Starbucks sells is extremely different from what Exxon sells - and we're not pertaining to the very fact that we do not drink gasoline! People need gasoline to drive to figure and obtain around - albeit the worth reaches $4.00 per gallon - but people don't got to spend $4.00 for a cup of coffee if they can not afford it. Heck, some people don't got to drink coffee in the least , while others cannot function without a minimum of that first morning cup of coffee, and there are those that need a pick me up cup of coffee during the day. When it involves investing your hard-earned money, you ought to keep this in mind. Generally, buying stocks in companies that sell things we'd like reduces risk. the subsequent sorts of companies are worth exploring for consideration:

1. Defensive Companies

Defensive companies sell things we'd like . Food companies, like Kellogg's and Campbell's are examples. We also need fuel, prescribed drugs , and consumer "staples" like toothpaste, soap and detergent . We even need the services of funeral homes to bury our dead!

The name "defensive" comes from the very fact that if the economy is showing signs of faltering, you'll defend your wealth by buying the shares of those companies. While companies that sell premium coffee and other luxuries will likely see declines in sales and profits which will cause falling stock prices, defensive companies will still chug along. We'll keep eating and a particular portion of the population will still pass on . have you ever known an individual who skipped showers and tooth brushing because the economy wasn't doing well? Didn't think so!

2. Income Companies

Imagine that a corporation provides gas for heating and cooking to homes on a populated island through a network of pipes laid under the island's streets. the corporate is in a stimulating situation. On the down side, it doesn't have opportunities to grow. On the up side, it doesn't have much competition. For a would-be competitor to shred all the streets on the island to get gas pipes next to the company's existing ones would be nuts!

So, what is the company to try to to with the profits it consistently earns? the choice most of those companies make is to disburse a big percentage of their profits to their shareholders who, after all, are the owners of the company!

These payouts to shareholders are referred to as dividends. Holders of those companies' stocks attend their mailboxes fourfold (the number of times dividends are paid) annually and retrieve checks that represent significant income!

3. Growth Companies

Ever been during a situation where something - maybe the last piece of wonderful chocolate triple-layer cake at a crowded party- was there for the taking? You knew that if you didn't grab it, and soon, somebody else would.

Some companies find themselves operating in markets that have such a lot potential for brand spanking new products, they know if they do not get these new products out soon, a competitor will. an excellent example of a market with tremendous potential is that the telephone market.

Growth companies have made it their priority to grow their sales and profits rapidly. When those profits are made, they're "plowed back" into new development . As a result, growth companies pay little or no dividends, making them a less attractive investment for retired people that need their investments to pay them a regular income. However, if they will gain leadership in growing markets, their stock prices can rise significantly. This attracts younger investors to who want to create wealth.

Finally, how can we tell if a corporation is growing rapidly? Generally, if its profits and sales are growing 15% per annum or more, we will definitely consider it a growth company.

4. Blue Chip Companies

Back within the day, the foremost valuable chip was blue. Investors began giving the name "blue chip" to large, well-known, stable companies that had what it takes to stay leaders in their industries year-in and year-out for decades!

Blue chips might not stand call at anybody regard. they'll not be growing as fast as growth companies or paying dividends as high as income companies. Their stock prices might not be rising as fast because of the latest darling of investors. All they are doing is still grow steadily and dominate their markets!

5. Cyclical Companies

The economy alternates between periods, or cycles, of growth and contraction (aka recession). When the economy moves from contraction to expansion, businesses and governments that had been holding off on construction projects give the go-ahead and buildings, bridges and roads are built. Basic materials like cement and steel are going to be in great demand. Companies that provide them had best at these times and not so well when the economy slows down. As a result, they're referred to as cyclical companies.

Perceptive investors can "rotate" out of those companies when the economy is slowing down and transition their investment dollars into defensive companies.

Taking this a step further, imagine if there have been companies we could invest therein would do better than normal when the economy is headed into a recession. Such companies exist. for instance , as consumers begin watching their spending closely, they visit "dollar stores" more frequently. people that are really down on their luck may need to pawn a number of their belongings, so pawn shops may experience increased business in downturns.

Another sort of business that benefits from bad times is that the collection agency, a corporation that focuses on getting people that are behind on their bills to pay up! Perhaps we should always name companies that do better as we're heading into a recession "anti-cyclicals!