Sunday, January 25, 2015

When to Invest in a Company?

A company may go through three stages starting with slow growth followed by rapid growth and finally a stage of slow growth once more that may ultimately lead to downsizing and even death of the company altogether. This process may take anything from a few years or a few decades to a few centuries. Ultimately each company dies same as with living organisms.

In nature, a population witnesses slow increase in number at first when the population size is still small, followed by a stage of rapid increase in numbers as the population increases in size and so does the number of births then this is followed by a third stage of fewer and fewer organisms being born and surviving due to lower rate of birth and higher rate of death ultimately resulting in the decrease of the size of the population.

It is thus wise to invest in a company during the period where it is witnessing rapid growth, this is the most fertile period in which the highest returns on investment can be made. It would be wise also to pull out from such company right  before its growth rates starts to dwindle.