The Shareholders

Most of the securities analysts give very much importance to the question of who are the shareholders. The shareholders can be divided into three categories: internal investors (directors, executive and advisors), great investors or institutions (mutual investment funds, pension plans and fiduciary banking accounts), and individual investors (public in general). To identify who the main shareholders are you would have to calculate the flotation of the shares. The flotation is focused on those individuals that possess big packages of mentioned shares. The number of shares in circulation is statistic information that always conditions the valuation done by the analyst.

When great part of the shares are in hands of persons or institutions that are closely related to the company, it is very improbable for another company to take over control without the consent of the board of directors.

Normally the questions done in these cases by the analysis are the following:

  1. Which will be the future growing pattern of society? (This question is done when supposing that the company’s family’s shareholding will make it almost impossible for the company to be sold or valuated).
  2. What do great investors see in companies’ future perspectives for them to possess such important pack of shares of them?
  3. What will be the price that will determine the shares to be cheap, taking into account their future perspectives? (The question is in reference to the risk / reward index.)

Facts have demonstrated that great investors are usually more restless than the average investors, and that they liquidate their portfolios at the lowest sign of weakness in their quarterly benefits. Securities discovered by the great investors tend to rear a high PER that makes them vulnerable to the changes of opinion of the investors.

It is worth to have present the following:

  1. When examining growth securities, judgment depends more in the foresight of future benefits, and because of it more possibilities to make serious mistakes when calculating can be made.
  2. Among others these are some of the factors that affect the capitalization of a company:
  • Long term general perspectives
  • Board of directors and executives
  • Capital structure and economic fortitude
  • History of dividends
  • Current distribution rate of dividends
The finality of fundamental analysis is:
  • The complete critical and ordained study of the results and the company?s balance
  • The formulation of appropriate criterion for selecting securities with a view for later investment.

Remember that the assets situations are reflected in the balance sheet, while for analyzing and valuating the growth situation you have to have in front of you the results account.

The first are easier to analyze than the second because with them you require of more objective appreciations that are based in figures or in comparisons or in a combination of both, and not in a valuation of the company?s management that is more subjective.

What the assets and growth situations have in common is that in both, the investors have to be logical and coherent when making an investment.

Final note
It is a joint conviction that the analytical investor chooses first the sector in which to invest and then selects the best securities within that sector.

Another solid and sensible principle is that if one by its way of being or by its economic situation does not want to take any risks, he must be pleased with investments that produce revenues that are relatively modest. It is also prudent to adequately diversify your investments, but not excessively.