How to pick stocks of companies with the right strategy?

Identifying a company with a sustainable competitive edge is one important thing. And in the previous chapter, we discussed in length how you, as an investor, can go about doing that. But before you make the final call on your investments, there’s one more thing you should look at. And that is the company’s strategy.

When we say strategy here, we don’t just mean the marketing strategy that a business employs. That’s important, no doubt. But it’s not the only important thing. The strategy we’re referring to here is the overall future-focused vision that a company has. What are its goals for the future? What values does it support? Are its visions of the future aligned with your own?

In essence, how do you pick stocks of companies with the right strategy? That is what we’re going to help you decode in this chapter. But first, let’s begin by taking a closer look at what core values are, and why they matter to a business.

What are core values?

The core values of a business are the beliefs, principles and philosophies that drive that business and its operations. They influence the experiences that a company offers its customers, employees, partners, and shareholders. In other words, the core values of a company are its DNA. They lay the foundation of what differentiates a business from its competition.

These core values are reflected in vision and mission statements that companies have. Let’s look at some examples to understand the core values of some popular companies.

Google

The famous catchline of Google (now Alphabet, after its corporate restructuring) goes like this - “Do the right thing.” It is a popular part of the company’s core values. But it doesn’t end there. Breaking down what the tech giant believes in gives us some precious wisdom that the company no doubt stands by in all of its products and services. Here are some of them.

• Focus on the user and all else will follow.
• It’s best to do one thing really, really well.
• Fast is better than slow.
• You can make money without doing evil.
• There’s always more information out there.
• The need for information crosses all borders.
• You can be serious without a suit.
• Great just isn’t good enough.

They not only sound great on paper, but as you have no doubt realized, Google incorporates its values into its everyday operations too.

Starbucks

Starbucks took a product as common as a cup of coffee and succeeded in turning it into a brand. The secret to this lies in its set of core values, which ultimately decide the strategies that the company employs. In fact, this is how the mission statement of Starbucks goes.

With our partners, our coffee and our customers at our core, we live these values:

• Creating a culture of warmth and belonging, where everyone is welcome.
• Acting with courage, challenging the status quo and finding new ways to grow our company and each other.
• Being present, connecting with transparency, dignity and respect.
• Delivering our very best in all we do, holding ourselves accountable for results.

We are performance driven, through the lens of humanity.

Tata Power

Closer home, we have the Tata group as an excellent example of businesses with strong core values. Tata Power, for instance, has the following key values listed out in its mission statement.

• Keeping the customer at the center of all we do
• Operating assets and executing projects at benchmark level through technology & innovation
• Sustainable growth with a focus on profitability and market leadership
• Creating an empowered workforce driven by passion & purpose
• 'Leadership with Care' for all stakeholders

Why are core values important?

Core values are important because they give purpose and direction to the company in question. Without any values to guide them, businesses will have a hard time conceiving policies and goals. Think of the core values like lampposts that guide a company along its way. Without them, there’s no guiding light for the company.

Core values and the strategies built upon them also have a number of other advantages for companies. Here’s a list of some such benefits.

• Values help strengthen employee engagement within an organization.
• They help retain existing talent and acquire new talent for the business.
• The brand that a company builds also has these values as the foundation.
• Customer satisfaction is another positive effect that the right values and strategy bring in.
• These values also play a key role in determining the growth and the stability of a business.

How can you pick stocks of companies with the right strategy?

There’s no right way to go about this. But here are some pointers that may help.

1. Identify what you believe in

The first step to figuring out the stocks of companies that have the ‘right’ strategy is to identify what you believe in. What is your vision of the future, and what are the core values you hold close to your heart? These are important questions to address, because if you invest in a company whose long-term vision you do not believe in, that could be a poor choice of long-term investment.

For example, let’s assume that in your world view, you believe that 5 years down the line, the world will gravitate greatly towards eco-friendly business practices, and that not following environment-friendly operational procedures will result in heavy penalties. Now, given this, it makes sense for you to invest in companies that are moving towards a similar future and have eco-friendly practices in place.

2. Look at the company’s vision for the future

Once you’ve identified what your vision of the future looks like, you need to analyse what the companies you invest believe in. Unlike the financial details of a company, this information could be hard to find. But it’s not impossible. To identify what a company’s vision for the future is, look at what its recent policies are aligned to. Is the company moving towards a sustainable future? Is it increasing its investment in human resources, or is it capitalizing more on the AI domain? These policies and developments can deliver insights about what a business believes in.

3. Check for consistency between its operations and its values

A company may have all the right values on paper. But is it following through with those values in practice? That is another thing you need to look into before deciding if the company you intend to invest in has the right strategy. For example, if a company states that it prioritizes customer satisfaction in its mission statement, but fails to follow it up with a robust grievance redressal mechanism for its customers, that’s a red flag you should look out for. Or, another example of such an inconsistency would be a business that states it believes in curbing animal cruelty, but distributes products that use raw materials born of animal abuse.

4. Remain within your area of expertise

As we’d mentioned earlier, finding the information you need to identify companies with the long-term right strategies can be hard. So, one way to ensure that you can find and analyse the right information is to invest in areas that you possess some degree of expertise in. For instance, if you have close to a decade of experience in the retail sector, you will be better poised to understand how companies in that domain function. So, it would be easier for you to identify good companies in the retail sector, as opposed to another sector that you have no prior knowledge of, like aviation or healthcare.

5. Invest in companies that align with your lifestyle

In other words, invest in companies that you are a customer of. You know them on a deeper level than people who have not accessed or utilized the products and services a company offers. If you have been a satisfied customer for years, chances are, the company may be doing something right. So, your past experience, your lifestyle choices, and your passions are great mileposts to weigh your investments by. However, keep in mind that these are not the only factors to consider. A holistic approach is always the right solution, when it comes to choosing your investments.

Wrapping up

Investing requires a 360-degree analysis, particularly if you’re looking to remain invested over the long term. Ensure that you take all the relevant factors into account before you place your money on a stock. The better your research, the better your returns.

A quick recap

• The core values of a business are the beliefs, principles and philosophies that drive that business and its operations. 
• They influence the experiences that a company offers its customers, employees, partners, and shareholders. 
• In other words, the core values of a company are its DNA. They lay the foundation of what differentiates a business from its competition. 
• Core values are important because they give purpose and direction to the company in question. 
• You can pick stocks of companies with the right strategy by first identifying what you believe in.
• Then, look at the company’s vision for the future and check for consistency between its operations and its values
• Remain within your area of expertise and invest in companies that align with your lifestyle.