You know the saying “Does the cream always rise?” In relation to the stock market, this is often the case. A name like McDonald’s or Caterpillar might not be sexy compared to a hot biotech stock, but quality stocks are the ones that get the best performance over the long term. The trick is to find out which stocks are worth your investment.
Quality stocks always rise to the top
Do you remember when Facebook went public in 2012? The company’s outlook was blurry, but everyone seemed to believe that founder and CEO Mark Zuckerberg was creating something magical. Still, the stock was a flop. I remember reading the headline on a Barron that predicted the stock would fall to $ 15 per share or less, more than 60% below its IPO price.
Many patient investors understood Facebook’s potential and took a risk. After all, more than a billion users couldn’t be wrong. (Today Facebook has more than 2 billion users, or 28% of the total world population!) Those who waited for the company to execute on their strategy have been amply rewarded. Quality wins.
How do you like her?
Why is a name like Facebook so rare? In my experience, management often doesn’t share the same vision as a long-term investor.
We usually hear a good sales pitch about how this company is going to change the world with their new (or revolutionary) product. Management will approach their company to improve the share price – so they can discharge shares. Then there are companies that may not be profitable yet or may not grow as fast as they hoped.
When businesses generate excitement, find out why. What is the long term strategy? Does the company have strong fundamentals? This is very much the case with Tesla. As long as you understand and manage your risk, you are in a position to make potentially large profits.
And don’t forget the boring “old” stocks. Companies that have been around for decades or more might not be sexy, but they are quality stocks. You deserve a place in your long-term portfolio. If they’re not doing well right now, take the risk and buy some stocks. You will likely carry your portfolio to greater heights.