Full Article: STOCK LIFECYCLES and MAXIMIZING PROFITS…
By: Clive P. Maund
Stocks are like living things, they are born, grow, mature, age and decline and then die, or are reborn, which reflects the fact that the companies on which they are based do likewise. This should not be so surprising since companies are comprised of people. Whole industries come and go as a result of the evolution of technology and changing fashions. A simple example of this is provided by the music industry, where first you had vinyl, then cassettes, then CDs and now the industry is moving to downloads, with vinyl making a niche comeback. If you as a company had insisted on continuing to produce music on vinyl or on cassettes, you would have gone the way of the Dodo bird. The only instances where companies and stocks do not go through the entire cycle to the death phase are unique cases where the company comes out with a very distinct product that has staying power, like Coca Cola and McDonalds and even these can’t go on for ever. Even Apple’s grandiose donut HQ near San Francisco will probably end up a tumbleweed strewn ghost town, but don’t tell management that, they have to find something to do with their current massive windfall profits.The normal stock lifecycle plays out over a matter of some years although it can vary wildly with individual stocks depending on the industry the company is in. A chart showing a simplified stock lifecycle is shown below. A company is born into Stage 1, the basing phase, which can be likened to a young tree in a forest, that has to contend with hazards like rabbits and falling branches and needs enough light to make it the canopy above. At this stage many young companies fall by the wayside, due to insufficient funds and/or being crowded out by the competition or other reasons. During this stage the company must “get its act together” and if it succeeds in establishing itself in the marketplace and securing a revenue stream from sales, it makes it to Stage 2, the growth phase, the equivalent of the young tree making it to the canopy above and finding its place in the sun and growing and developing. This is the stage at which a company’s products may become very popular and sales may expand a lot generating big profits. Eventually, however, growth reaches its limit: “no tree grows to the sky”, and with Parkinson’s Laws dictating rising bureaucracy and costs with management typically feasting on the profits, growth slows as the company matures and ends up treading water until it succumbs to the growing inroads made by leaner and meaner competition, or to a decline in popularity of its products, or both. This is Stage 3, the top phase. Once the company loses its edge and sales and profits decline it enters Stage 4, the declining phase. This often ends in a crisis where either the company goes broke or it reinvents itself in another Stage 1 basing phase from which it may succeed in emerging into a new Stage 2 growth phase.
Full Article: STOCK LIFECYCLES and MAXIMIZING PROFITS…
By: Clive P. Maund
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