Qualitative factors to consider while investing in stocks
Investors may follow the popular value investing or growth investing strategies, but there are qualitative factors to consider while taking investment decisions. The qualitative factors pertain to those aspects of a company that do not get reflected in the financial ratios of the company. These aspects include business model of the company, quality of management and the competitive advantage enjoyed by the company. Let us take a brief look at each of these aspects.
For an investor, the business model of a company is important to understand the company’s vision about its business and the processes, plans and strategies it has put in place to achieve it. Without such an clear understanding of its vision and mission in business, the company would be moving around like a directionless ship.
The quality of management of the company has to be high to ensure that the company moves ahead with a sense of purpose and in the right direction. A strong leadership team of highly qualified and experienced professionals with an exceptional track record in the business can take the company to great heights.
If the company enjoys a competitive advantage over its rivals, the company will be in a leadership position. The competitive advantage could be in the form of lower cost of production of goods or services, which can lead to higher sales and better margins. The company could also enjoy advantage in the form of superior quality of its product, larger distribution network, higher brand recall, better customer service, etc.
A qualitative analysis of a company based on the above parameters presents an investor with a better understanding of the company and its business as well as better understanding of the industry it is operating in.