Finding attractive companies in the current market environment is no easy matter even within the entire universe of global equities. Equity markets are the meeting point for buyers and sellers of stocks. The securities traded in the equity market can either be public stocks, which are those listed on the stock exchange, or privately traded stocks. Often, private stocks are traded through dealers, which is the definition of an over-the-counter market.
Companies sell stocks in order to get capital to grow their businesses. When a company offers stocks on the market, it means the company is publicly traded, and each stock represents a piece of ownership. This is attractive to investors, and when a company does well, its investors are rewarded as the value of their stocks rise.
The stock of a corporation is all of the shares into which ownership of the corporation is divided. The shares are commonly known as “stocks” or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued for example without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.
In the equity market, investors bid for stocks by offering a certain price, and sellers ask for a specific price. When these two prices match, a sale occurs. Often, there are many investors bidding on the same stock. When this occurs, the first investor to place the bid is the first to get the stock. When a buyer will pay any price for the stock, he or she is buying at market value; similarly, when a seller will take any price for the stock, he or she is selling at market value.
By targeting the most famous companies, the likes of Amazon, Netflix and Apple or other similar stocks – other investors assume they can obtain truly blue-chip exposure. Yet, at the heart of this decision is an ambition to derive better outcomes than they can otherwise obtain by investing locally.
Therefore, global equities are better thought about as a process of filling portfolios with assets that offer attractive reward for risk. By extension, this requires one to have conviction over the best assets as well as reasoned analysis to support that conviction.
It is important to have a clear and consistent analytical framework that enables investors to make a holistic assessment of these opportunities. As future returns are a function of both the cash flow generated by an asset and the price paid for that cash flow, it is essential that any assessment incorporates both these factors together including the future risks to that cash flow.