Why do we buy a particular company’s Share?

Saturday, 2nd May 2009 17:58 - by Boredmum

So, why do we buy? I don’t mean because we want a holiday in the Caribbean, a new car, kitchen, bathroom or little cottage in the country. I mean what makes us buy a particular share? One of my first experiences was buying Coolabi (TIDM code: COO). I bought it because they had purchased the Purple Ronnie franchise and thought the Purple Ronnie brand was cool. I liked the product and, given what they paid for it, thought they would generate decent revenue. What I didn’t know about Coolabi was what the Management plans were. ‘Organic growth’ is the fancy title, but what that means is that they keep spending my money as they buy new licences. Long-term, this can be a very good thing, but unfortunately in the 15 months that I’ve held them there has been no shareholder value and a whopping fall from 36p to 10.5p. It is vital to know what the company plans are and it is also good to find out a little about the management team, using the internet to search, find out what other companies they are involved in and what their track record is like. Contact them and ask them questions such as where do they see the direction of the company heading, and what their plans are now and long-term. Get a feel for who you are investing in and then you can have realistic expectations. The other thing to do is to look at the previous regulatory news services (RNS), ensuring you only go to the London Stock Exchange for the most accurate information (http://www.londonstockexchange.com/en-gb/). Check the company accounts and see if they have been producing a profit, find out about revenues being generated, and even what they pay their management team. It is your money you are investing, so find out how they spend it. You need to know the likelihood of a return…which is the real reason we invest, after all. If you have any good tips on research, please post them in the comments box below.