Individual Companies vs Overall Economy

[ENP]

When looking to invest into a company, do you focus more on the overall economy if the share market is going to fall or do you focus solely on the individual company and it's balance sheet, profits and future prospects.

[Silverlight]

Hi ENP,

One aspect I consider when investing into a company, is forecasting my expectations. If I expect an increase in the price of the share, because of my forecasting, say the price is $1, and I forecast a price of $1.20 in 2 years, because of improving sales, increasing profits, PE ratios etc, or whatever you use, I then need to compare my expectation to the economy.

If you expect the economy over the same 2 years to go well, and say the local comparative index is at 1000 points and 2 years from now it is 1300 points, then the conclusion is I expect this company to underperform the index, based on my economic expectations.

If that is the case I may as well buy an index fund, as the return will be better.


When investing into a specific company rather than another asset, your expectation is it will outperform, that’s why you are choosing it.

Where you place your money is a statement of your faith in the return you will receive is better than placing it elsewhere. Too may investors invest into companies with no consideration or view for the underlying market.

[percy]

there is a lovely quote by belgarion on GPG thread."a rising tide lifts all ships".I look at my watch list every day.Today on my watch list with markets up 22up,19 the same or untraded,3 down.
When market goes down lucky to get 3 up.The hardest thing to do is to sell your stocks when the market turns down.No i think...? will be ok. never is.

[peat]

When looking to invest into a company, do you focus more on the overall economy if the share market is going to fall or do you focus solely on the individual company and it's balance sheet, profits and future prospects.

text books talk about the top down approach, work through these three in this order
economy
sector
company
But company prospects might over-ride other conclusions on occasion , say for instance PRC as being much more dependent on the success of its own efforts right now than whether the economy overall is doing well.
but to a degree its profitability will be determined by commodity prices .......

in general though its difficult to find boats rising when the tide is going out.

[ENP]

text books talk about the top down approach, work through these three in this order
economy
sector
company
But company prospects might over-ride other conclusions on occasion , say for instance PRC as being much more dependent on the success of its own efforts right now than whether the economy overall is doing well.
but to a degree its profitability will be determined by commodity prices .......

in general though its difficult to find boats rising when the tide is going out.

So economy is crapping itself, but for example the retirement home industry is good and Ryman Health is showing good improvements year on year. If this was you would the sector/business over ride the economy?

Same is true with the likes of Colgate (everyone needs toothpaste right, recession or not) also the likes of Dominoes Pizza, Mcdonalds, Coke, etc)