Making Money in Bad Companies

Sometimes you can make more money by purchasing the shares less attractive in an industry where cree que el sector is due to a change. While it is counterintuitive, a little simple mathematics can show why it makes perfect sense and can leave the astute analyst with much fat pocketbook. Such operations are for investors who have already built their entire portfolio and are financially viable in the foot, but should not represent a substantial portion of their assets and are best left to those who have a good understanding of economics and risks of the situation.

An example in the petroleum industry
Imagine being at the end of 1990 and of crude oil is $ 10 per barrel. You have some spare parts capital with which to speculate. It is his belief that oil soon skyrocketed to 30 dollars per barrel and that he would like to find a way to exploit their hunch. Usually, as a long-term investor that would deal with the company to better suit the economy and its capital in stocks, parking them for decades as they collected and reinvested dividends. However, to recall a technique taught in Security Analysis and really seek out the least profitable oil companies and start buying shares.

Why do this? Imagine you're looking at two oil companies fiction:

• Company A is big business. Oil is currently $ 10 per barrel, and its exploration and other costs are $ 6 per barrel, leaving a $ 4 per barrel profit.
• Company B is a terrible business in comparison. It has exploration and other costs of $ 9 per barrel, leaving only $ 1 per barrel in profits at the current price of 10 dollars per barrel crude.

Now, imagine that skyrockets crude to 30 dollars per barrel. Here are the numbers of each company:

• Company A earns $ 24 per barrel in profits. ($ 30 per barrel oil price - $ 6 = $ 24 in expenses profit).
• Company B earns $ 21 per barrel in profits ($ 30 per barrel oil price - costs $ 9 = $ 21).

Even if Company A makes more money in an absolute sense, their benefit only an increase of 600%, from $ 4 per barrel to 24 dollars per barrel compared with Company B, which increased its profits 2, 100%. These differences are likely to be reflected in the share price which means that although the first company is a business better than the second is a better balance.

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Normally, these operations are most successful in industries that depend on the prices of their underlying profitability, as producers of copper, gold mines, oil companies, etc. wild fluctuations in commodities may give rise to huge fluctuations in income of the company, which makes them good candidates. Of course, unless you are a professional, should not participate in these types of transactions, instead focusing on building long-term wealth through value-based, intelligent, discipline and investments that focus on harness to maximize profits at lower risk.