Getting Better, Getting Worse
There are only 2 kinds of companies listed on the stock exchanges--companies with rising situations and companies with declining situations.
Knowing who is who makes all the difference in the world to you and your money.
If a company is in a declining situation, you must stay away. There is no benefit to being a part of a declining situation.
Behind every declining situation is a declining customer base. What follows the decline of the customer base? Declining revenues and declining profits. Stay away!
Just the opposite is true of a rising situation. A rising situation is a company that wins more new customers every year while still retaining old ones. At some point, the rise in the customer base will show up as rising revenues, rising profits, and ultimately, a rise in the price of the company's stock.
The easiest way to tell if a company is a rising situation or not is to look at the growth of its top line (revenues) in relation to its peers. If the top line is growing faster than its peers, it is a rising situation. If the top line is growing slower than its peers, it is a declining situation.
It may appear to be ok for a company to grow slower than its peer group in the same industry. It's ok, that is, until a recession comes along. When the recession comes, watch out! The declining situations get nailed and nailed hard.
Invest only in rising situations and you will enjoy success in both good times and bad.
©Edward Abbott 2005