Saturday, 22 December 2012

How to select the better company to invest in? Comparing Companies.

If the companies you wish to compare are in different industries, you should use the industry as another subjective criterion.  You can compare investments in different industries if you're interested in the best investment opportunity.  Some criteria; e.g., profit margins, differ from industry to industry so you will want to overlook those items.  You may find one industry to be more appealing to you than another and should allow that criterion to help with your decision.

The criteria you should use for comparison are not limited to the "value" and "quality" criteria.  The most important criteria are those that address "quality."  Beyond that, the price-sensitive "value" criteria will address the potential rewards and risk.  However, such items as the industry or company size may have a bearing on your decision as well, although they are less critical than some of the others.

For comparison, you should select no more than 5 companies.  More than five companies becomes a "screening" exercise and becomes unwieldy.  While companies may be in a variety of industries, some comparison criteria such as profit margins may be valid only when comparing companies in the same industry.

You should circle a value if it's better than most of the others.  Circle the values that are better than most for each criterion.  It may be more than one - or all - if they are close enough not to be obviously ruled out.  All you can hope to accomplish by circling the criteria is to sharpen your judgement and separate the chaff from the wheat.

Pick a winner on the basis of your overall subjective assessment.  Base your decision on your overall subjective assessment, using the number of circles as a guide and the more subjective items such as the industry the company is in, the size of the company, etc. as tie breakers.  The number of circles is important only as a starting place and guide; and should be tempered with your assessment and "gut feeling" about the company when the numbers are close.  

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