Why is it so difficult to identify growth securities?

The reason is very simple, because in this search one competes against everybody and many investors with whom one competes have more capacities and contacts than one does.

What are the dangers when investing in growth securities?
When investing in growth securities, one must always have in mind that it is possible that those securities might be being sold at a higher price in relation to the gains; due in part, for taking into account the future growth to have present that many securities of this type are in hands of large investors that will not doubt in liquidating them if there is evidence that growth in sales and benefits stop being outstanding. Because of it, it is not strange that fluctuations on the prices of the growth securities are intense and frequent.

With this, we are not saying that the growth securities are not appropriate for the individual investor, but that when they buy they must be sure that they are betting for a real growth situation.

The cyclical securities and the societies that they represent form part of an important category. This type of securities are usually from companies that operate in individual sectors as if that of the automotive and steel.

When investing in companies of these sectors, one has to choose well the timing. To be successful in ones negotiation of these type of securities one has to have the necessary knowledge, or at least an intuition of the cycles of the industry and the economy, and to this one has to also add a disposition for going “against the stream.” That is, to invest in securities that nobody wants in the precise moment and to wait until the climate of the economy and the market changes. To invest in cyclical securities consists then, in buying them when the economic cycle is at its lowest, and to sell them when it is at its highest point.

It is not rare for many individual investors to do well with this investment modality; this is due to the fact that many of these investors have more patience than large investors.

The defensive securities and the companies that they represent, form part of another important category. The defensive securities represent tobacco, liqueur and food companies, meaning they are companies that defend themselves well in periods of economic recessions. (This is because they supply the market with products that satisfy the basic needs, and consequently, are not affected too seriously by the articulated negative changes of the economy, due that people cannot live without consuming these products or is stubborn enough to avoid doing it.) As happened to the former category, in this one, timing also represents an important role. These securities form a field of investment in which the individual investors prevails.

There is another field in which one could direct ones own research activity. It is about securities which prices related to the gains are lower. One could say that these securities are those removed from the market.

In this category all the negotiated securities that fit in it have a price related to the gains of less than 10; it is a category that shelters companies which few investors (large or small) show interest in. As in national, these companies do not attract the attention of security analysts, nor one can say that among their shareholders there are any major investors.

Many of these securities have a low contracting level, meaning that there are a very small number of them in the hands of this public and that it is not easy to find financial information of those companies. But, although it seems paradoxical, a series of studies have put on highlights that the securities low prices related to the gains have overcome in profits many of the so called growth securities, that is to say, of high prices related to the gains.

Some analysts have directed their attention towards what it is denominated as “bottom fishing, which means, people have begun to take notice of those removed from the market.

Due to this conditions, small investors might be able to profit from these securities if, on the one hand, they would dedicate the necessary time and effort to research these companies or on the other hand, they could hold enough to retain these securities until the evolution of internal or external facts, would change the opinion of the market about their true value.

At this point it is worth to make some general observations about the methods that are used to decide in which sectors and companies to invest.

In first place, there exists the general conviction that the worst company of a flourishing sector will be a better choice for the market than the best company of a sector in clear decadence.

If, in spite of all, one decides to invest in a sector that is not doing well, be cautious, have patience and select a company with a financial capacity that can allow it to overcome its economic crisis.

In the second place, after studying the figures and before deciding to invest in the selected company, it is very convenient to read and inform oneself as much as possible about the managing board. As everybody knows, the management has an important and fundamental role in the success or failure of any company.

In the third place, verify if the company and its securities are being sponsored that is if they count with the interest of many investors. Have in mind that many companies are without being discovered just because they lack of the sponsorship of some analysts or be investors. Even when buying securities that awaken no interest can result profitable. It is always worth to determine beforehand, who might buy them from one and why are these securities going by unnoticed.