Growth and Securities

The companies that currently exist are not going all to harvest all the crops derived from a continuous growth. The investors always tend to extrapolate too much and they are very pessimistic with respect to securities. This tendency contributes in placing the security investor in the correct side of the risk equation posture that might be interpreted as a way of investing in opposition that is, doing it in opposition to the majority. The thing is very simple: the securities have struck bottom, and they can only rise if their results are better than expected; also they have less loss risks in periods in which the market are unstable. Normally, securities do not count with the favor of the public and they have prices (based in its benefits, dividends and accounting value) that are below the average level. But the situation is not always the same; the securities do not always occupy struggling positions. If well securities of the largest companies have usually been behind growth securities in the S & P 500, in Russell 2500 (index that measures profitability of securities from the 2500 companies that follow in size to the largest 500) overcame those of growth in the past 13 years until June 30, 1999.

However, we must emphasize that in that same period, in the S & P 500 growth securities where much better off.

There are several reasons to suppose that the investments in securities will enjoy again the favor of the public, among them the following:

1. Security markets have a tendency to return to the long-term norms. Unusual high periods of returns are followed by periods with returns under the average and not only in the whole market system, but also in other segments of it.
2. Securities considered as a whole are generally quoted lowly due to the expectation of investors about its possible growth that is also low. However, on the long sight long-term points out to very modest business benefits, and with not very comforting expectations, there could be the case that securities might surprise us favorably with an unexpected revaluation.  .
3. Dividends also count. Although profitability due to dividends is low, those contained by the securities listed on the S & P 500 surpassed in two percentage points to those obtained by the growth securities. Even during the frenzied decade of rising purchases that ended in September 1998, dividends supposed around a 30% of the accumulative profits of the S & P 500 ciphered in a 393%. In periods of stable or falling quotations dividends constitute the only positive source of profitability.

Hybrid Forms
Although most of the companies may be put in any of these two categories (assets or growth), there are times that after analyzing the balance and the results account of a determined company; you arrive to the conclusion that it does not fit in any of the two.

In fact, the company might present characteristics of one or another. In this case, the most appropriate is to first determine in which of the two categories does it fit better and then to apply the specific analytic tools that will permit to evaluate its merits for investing in it.

The use of tools that we have studied in this section should be enough for deciding if it is worth or not to invest in any company.