How to gather qualitative information?

There is a lot of information that you can gather to check the qualitative aspects of a particular stock. This includes a lot of information including-

  • Sectoral Performance

Is the company doing business in a Sunshine sector? For example in the 1990’s IT Sector was at its best and anyone who invested in those shares would have accumulated a lot of wealth by end of the decade.

  • Quality of the Products

Great companies have products and services that people want year after year because of their universal appeal or because the company keeps the products fresh with shifting consumer concerns.

  • Leadership /Monopoly

Market leadership is a very important factor.  Market leaders can set  benchmarks  for their industry. Market leaders set the pace for the industry and use their size to protect their position. They are able to hire top talent and have the resources to keep pushing their advantage.

  • Quality of Management

A consistent performing management is important for organizational well-being. Investing in companies with reliable management is a safe bet since they have the ability to overcome unfavorable situations. A good management builds trust and confidence in investor’s mind.

  • Customer Satisfaction

Are the customers of the company satisfied? The answer to this question decides the fate of the company in the long run. Customer satisfaction has direct impact on a company’s business and hence its stock value. As long as customers are happy, you investment is a safe bet. This is especially true in highly competitive markets. For example, markets for food and beverages are very sensitive to customer satisfaction and consumer tastes and preferences.

  • Business news

Business news about the company can also impact its share prices. The news of a new product launch, labor dispute or a significant trade agreement affects stock prices. This is because these factors affect the investor’s conception and confidence about the company. The Reliance Industries share prices went up drastically when the news of its Lyondell bid being rejected hit the market. This is because the investors had feared that Reliance would overpay for this international deal.  - Insider information or leaking of confidential information about the company can also create a stir in its stock prices. To give an example, the stock prices of Reliance Communications took a dip (almost 26%) in the month of October of 2009 when information given in the government commissioned audit report that the company had understated revenue to the government, was revealed.

  • Media reports

Keep a track of news about companies in which you are interested. Positive news will most likely cause stock prices to rise. The opposite is also true. Here you need to understand the nature of the news and also try to estimate the possible duration of such effect on investor sentiments.  This is important when you make decisions about selling or keeping a stock.

  • Follow the Big Players

Institutional investors such as mutual funds, pension funds or hedge funds have access to a greater amount of information than retail investors. Therefore, when such institutions invest in a particular stock, it sends a positive signal.

Because of the sheer volume of their transactions, stock prices can rise when they buy and tumble when they sell off these shares. Presence of institutional investors increases the chances of price volatility in a stock. So, you may have to keep a close watch on the moves of these big investors.

It is easy to figure out whether a stock has attracted institutional interest. Both BSE and NSE provide the bulk deals data, shareholding patterns of companies, FII holding and other major shareholders.

  • Check the promoter’s share.

Promoters are the entities that floated the company, and to a large extent have seats on the Board of Directors or the management. Relatives of the promoters who hold shares also fall under this class and are termed the promoter group. It  shows the extent of control promoters have over running of the business — a very high promoter holding is not a good sign.

Companies are also required to declare the promoters’ shares that have been pledged as debt collateral. Such pledging of shares is a sign of risk as it indicates that a company is extremely strapped for cash and has no alternative route to fund raising. Such pledges are risky- If the company falter in making payments, the lender may sell the shares. Also, prices of pledged shares fall below a certain limit the promoters may be required to make up the difference.

So a balanced share holding pattern is what you should be looking for. A good presence of institutional shareholders would mean that it won’t be easy for the management to carry out decisions according to their whims.

CONCLUSION

Before you start analyzing a company, it’s important to collect the above mentioned factors. Before going into financial analysis, these non-financial factors will give you first hand information about the company and to where it’s headed in future. This is not a complete list. I hope this helps to get an idea about how to go about collecting data about the qualitative aspects.

You may like these posts:

  1. Qualitative data analysis
  2. Shareholding pattern – it tells you a lot.
  3. Pledging of shares -A must check.

1 Response to “How to gather qualitative information?”

RAVI IYER

August 7, 2012 at 9:53 pm

Very specific and to the point. Good work Victor. Keep it up. I will be learning lot on this blog. Thanks a ton. God bless.

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