Quality Eventually Rises

They say the 'cream always rises to the top', and that is often true in the stock market.  You might not think a name like McDonald's Corporation MCD or Caterpillar CAT are sexy names compared to a hot biotech stock. But over a long period of time the strongest and highest quality names perform the best.  That's not to say as an investor you shouldn't take some risks.

 

Remember in 2012 when Facebook Inc FB went public. Not much was known about their future prospects, but everyone seemed to believe CEO Mark Zuckerberg would create something mystical. Early on, the stock flopped and there was a Barron's headline predicting the stock would fall to 15 bucks a share or lower, more than 60% less than the IPO price!

 

But many patient investors saw the quality in this name and understood the Facebook story and the 1 billion-plus users (which today stands at more than 2 billion, or 28% of the entire world population!). Those who waited for the company to put out their strategy and execute it were handsomely rewarded.  Quality wins out.

 

But why don't the cheaper, prospect names perform like a Facebook?  Unfortunately, management often does not share the same vision as a long-term investor. Usually, we hear a slick sales pitch about how this company is going to change the world with their new (or revolutionary) product.  

 

Whoever has skin in the game is likely to talk up their company to spread the word and ownership representation, to unload shares.  Yet, the company may not be profitable and only 'promise' to be, or perhaps revenues are lacking.   Again, there is nothing the matter with speculating.  Understanding your risk involved and managing it properly puts you in a position to potentially may some large gains.  

 

There will be times when the boring 'old' stocks do not perform well or even keep up with the market.  There could be reasons for it, but don't discount the highest quality names that deserve a place in your long-term portfolio.  Those are the steady and trustworthy stocks that will carry your portfolio to greater heights.