Stocks Are Pieces of a Company
Purchasing shares of stock is like buying a business. That's the way Warren Buffett, one of the world's most successful investors, views it — and his philosophy is certainly worth noting. When you buy stock, you're actually buying a portion of a corporation. If you wouldn't want to own the entire company, you should think twice before you consider buying even a piece of it. If you think of investing in these terms, you'll probably be a lot more cautious when singling out a specific company.
It's important to become acquainted with all of the details of the company you're considering. What products and services does the company offer? Which part of the business accounts for the greatest revenue? Which part of the business accounts for the least revenue? Is the company too diversified? Who are its competitors? Is there a demand for the company's offerings? Is the company an industry leader? Are any mergers and acquisitions in the works? Until you understand exactly what the company does and how well it does it, it would be wise to postpone your investment decision.
The Altria Group, formerly known as Philip Morris, is primarily associated with tobacco products, but the company also profits from its popular beer subsidiary. It holds 28.5 percent of SABMiller Brewing, the home of Miller beers. In addition, the company holds Philip Morris Capital Corporation, which is involved with the financing and leasing of major assets.
Let's say you want to buy a convenience store in your hometown. You've reviewed such factors as inventory, the quality of the company's employees, and customer service programs. In addition to selling staple grocery items, the company also rents videos and operates a gas pump. The grocery side of the business may only account for a small percentage of the overall revenue. It would be in your best interest to value each part of the business separately in order to get a complete and accurate picture of the company's profit potential. Many companies have traditionally been associated with a specific business, yet may have expanded into totally new venues.
Disney, for example, has historically been associated with the Disneyland and Disney World theme parks. The reality is that Disney is also involved in a host of other ventures. Among other things, the multifaceted company has interests in television and movie production, including Touchstone Pictures and Miramax Films. Disney's ABC, Inc., division includes the ABC television network, as well as numerous television stations and shares in various cable channels like ESPN and SOAPnet.
It should be increasingly clear that making money through investing requires work. The more research and thought you put into your strategy, the more likely you are to reap rewards. Although there are no guarantees in the world of investing, the odds will be more in your favor if you make educated and well-informed investment decisions. When you make an investment, you are putting your money into a public company, which allows you — as part of the public — to become an owner or to have equity in the company. That's why stocks are often referred to as equities.
