Finding a suitable long-term investment is not easy as there are so many different factors to take into consideration. The market, balance sheet, competition, the list goes on. So, are there any shortcuts to finding potentially lucrative investments for the future? Is there any way to piggyback professionals who have been there done it and are looking to do it all over again?
Follow successful management
How many times have you looked at stocks which have excellent management who have been there for many years and built the company up to be a giant? Any company, no matter how successful, will reach a point where larger expansion plans are required, more expensive takeovers and with these come more risk. As shareholders demand an ever greater return on their investment it can become difficult to maintain forward momentum. In these situations it is not uncommon for management to jump ship and start again at a smaller company or perhaps a shell operation.
Reputation
If a chief executive, or a group of directors, has built a good reputation in the investment markets they will do all in their power to maintain this going forward. So, you can bet your bottom dollar that successful management moving to a new company will have done their homework, will have a plan in place and will be confident they can deliver. In many ways you are backing their past reputation but as management and directors live and die by their reputation, you can guarantee they will fight tooth and nail to maintain and improve this.
Smaller companies mean greater leverage
As we touched on above, many successful management groups will build companies which can be valued in the billions of dollars. To have any material impact upon the value of a company going forward, takeovers and expansion plans will need to be more expensive and perhaps more high-risk than before. However, the situation is very different when starting with a smaller company because one deal can materially impact the potential and the profitability going forward.
You can also guarantee new management with a successful track record will also have an array of contacts, useful when looking to raise finance, bring in new business or simply build the profile of the company going forward. You should also watch for significant investment by new management because once they part with their own cold hard cash it is a whole different ballgame!
Niche markets and exit strategies
In many ways it is better to be a big fish in a small pond than a small fish in a big pond. Niche markets, assuming they are researched in great detail, can make or break a company if the strategy and expansion plans are correct. The ability to dominate a niche market can also offer an interesting exit strategy because on one hand you could become a thorn in the side of a competitor or a company looking to branch out into a new market may see you as a perfect add-on.
While the official line from long-term successful companies is that they wish to maintain their independence going forward, remember, every company has its price!