The life of a company, the analogy with the living !
How to invest at the right time? Certainly one of the first questions an investor asks before investing in the stock market. Without going into technical considerations of management, finance, price action and other technical means in a very prosaic way, the life cycle of a company resembles that of a living being. It revolves around major phases: development, growth, maturity and then decline.
An idea emerges, a team is formed. The founders raise the first funds and develop a first service or product. The company is in its development phase. This is the most risky for the investor, a lot of companies do not pass the threshold of the first sales.
The company must then very quickly find its first customers by forcing its way through the competition. Its main weapon the competitive advantage is it responds to a new need or an existing need more effectively. It then enters its introductory or launch phase. This phase remains risky for the investor, many companies do not stand the test of the market.
To be sustainable, it must bring added value to its environment but also do it better than the competition. Those that are best suited to their market will grow faster. They will take market share from their competitors and contribute to the development of their sector of activity. This is the growth phase. This is the phase of maximum profit and the least uncertain for the investor. This will end when the company has begun to saturate its market. The company then enters its phase of maturity.
If nothing is done to initiate a new cycle of development, in particular by reinvesting profits for the development of new markets, the company will then enter a phase of decline.
Some companies may experience several development cycles with phases of “rebirth”.
How to invest at the right time? What about industries and sectors?
Sectors of activity are born, evolve, mutate and disappear with the sandstone of evolutions and market contexts in the same way as the companies that compose them.
Depending on the role they play within the economy, they follow cycles analogous to those of the company. The sector of activity is to the company what the species is to the individual.
In a medium and long term approach, it will therefore be necessary to pay particular attention to the life cycle of the industry and the sector of activity in the same way as to the life cycle of the company.
To help us classify a company very simply, there is a standardized international nomenclature, the Global Industry Classification Standard (GICS). Each company is attached to a sector of activity and an industry.
It is then relevant to evaluate and analyze the life cycle of sectors and industries in order to pre-select companies in industries with the most potential.
In order to best select your target sectors, industries and companies, discover the 3 principles of strategic analysis.