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Why these Companies Wiped Out Your Money
Tue, 14 Jun Pre-Open

Instead of learning from other people's success, learn from their mistakes. Most of the people who fail share common reasons (to fail) whereas success can be attributed to various different kinds of reasons.

- Jack Ma, founder of Alibaba

One of the best ways to learn is to learn from the costly mistakes made by others. It can save you a great amount of time as you would not have to make all those mistakes on your own.

We came across an insightful article in the Hindu Business Line that talks about some common mistakes by Indian companies that have decimated investors wealth.

As per the article, if one analyses stock price returns for 2,300 BSE-listed stocks since 2006, 630 of them had wiped out 50% to 90% of their investors' wealth in the last ten years. Some of the key factors for the dismal performance of these companies were:

  • Diversifying into unrelated businesses- Quite often companies diversify into unrelated businesses in order to take advantages of lucrative business opportunities or to diversify risk. However, this decreases the long term durability of such businesses and make them poor wealth creators for shareholders.
  • Acquisitions made when prices are soaring- When times are good and commodity prices are soaring, many companies go on an acquisition spree. They assume that the uptrend in prices will continue. However, this tendency crushed many players as commodity prices crashed.
  • Hyped-up themes- When companies fall for hyped-up themes in the market, without paying any heed to the fundamentals, they burn their cash. The much hyped dotcom bubble is a great example that one can remember here.
  • Late to adapt to changing times- Companies that are late in adapting to changing industry dynamics and consumer behaviour fail to survive as competitors eat up their market share.

So, these were the common factors that led many companies to perform poorly. And investors who ignored these warning flags lost a large portion of their wealth that they had invested in these companies.

The key learning here is to keep away from companies that show such tendencies. One very useful tool is the C-score report. The C-score was discovered by financial strategist and writer James Montier. The score predicts underperformers by scoring companies on five separate parameters. The higher the collective score, the more likely the stock will underperform. We have compiled the "Crash Score" report that explains Montier's process and parameters in detail. The report is made available FREE to all. Do make sure you grab your copy today.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Nov 22, 2017 (Close)