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Good Companies Versus Good Investments

September 30, 2009

One concept that value investors keep in mind is that a good company is not necessarily the same as a good investment.An established firm with high revenue levels and a stable, strong earnings record, for instance, certainly sounds like a good company. But like any company, that firm only represents a good investment if it can be purchased at a favorable price.

Take Cisco Systems as an example. In April 2000, Cisco qualified as a good company by many popular standards. As a supplier of data networking products for the Internet, the firm was logging strong sales and demonstrating real earnings power, as well. In 1999, Cisco posted $15 billion in revenue and $2.5 billion in net income. Even as many technology companies were fading fast, Cisco’s dominant market share in an important industry meant the firm’s future prospects were bright.

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