# How can I be sure whether a company is profitable or likely to fail? **URL:** \ **Category:** Factual Questions\ **Created:** [April 17, 2014, 6:05am UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323 "2014-04-17T06:05:33Z")\ **Posts on this page:** 12\ **Page:** 2
**Author:** ![Superhal](https://avatars.discourse-cdn.com/v4/letter/s/b4bc9f/32.png) [@Superhal](https://boards.straightdope.com/u/Superhal)\ **Post date:** [April 18, 2014, 9:21pm UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/21 "2014-04-18T21:21:41Z")
Probably the most consistent indicator of success I’ve seen is humility. Microsoft, Apple, many writers/musicians, etc. all eventually fail when they think they can put out any crap and still have great sales. They believe they know better than the customers what is good or bad. Usually, these companies were successful in the first place because they had an illegal monopoly (Microsoft,) were pioneers in a particular field (Apple,) or became a short-lived fad (usually among young people) like Twilight. On the other hand, SuperCell (makers of Clash of Clans, a game that generates at one point $1 mill per day) never took success for granted. First, they take as much time as necessary to develop their product. Then, to avoid watering down the brand, they release/beta the game in Canada only, continuing to develop it as time goes by. They maintain a bulletin board and several full time employees to monitor it just to measure customer satisfaction. Updates, tweaks, bug-fixes, and new content is added monthly. There’s an old expression: the first step in failure is success. Companies that become arrogant always fail after success. Those that stay humble never do. ---
**Author:** ![Telemark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/telemark/32/372_2.png) [@Telemark](https://boards.straightdope.com/u/Telemark)\ **Post date:** [April 18, 2014, 9:25pm UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/22 "2014-04-18T21:25:32Z")
> [@sidecar\_jon](#): > > indeed…don’t touch them with a barge pole. No tax means they don’t make a profit. Absolutely. Except for the billions in profit they made. That doesn’t count. ---
**Author:** ![davidmich](https://avatars.discourse-cdn.com/v4/letter/d/e56c9b/32.png) [@davidmich](https://boards.straightdope.com/u/davidmich)\ **Post date:** [April 29, 2014, 8:50am UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/23 "2014-04-29T08:50:20Z")
Thank you all. Very helpful. davidmich ---
**Author:** ![sidecar\_jon](https://avatars.discourse-cdn.com/v4/letter/s/a5b964/32.png) [@sidecar\_jon](https://boards.straightdope.com/u/sidecar_jon)\ **Post date:** [April 29, 2014, 4:38pm UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/24 "2014-04-29T16:38:37Z")
> [@Telemark](#): > > Absolutely. Except for the billions in profit they made. That doesn’t count. Then they pay tax… if they don’t pay tax they don’t make profits. They might fiddle and fraud but tax is the bottom line. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [April 30, 2014, 6:28am UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/25 "2014-04-30T06:28:10Z")
> [@sidecar\_jon](#): > > Then they pay tax… if they don’t pay tax they don’t make profits. There are investment tax credits and loopholes that permit profitable companies to pay nothing in taxes. Article: [Large companies find ways to a zero tax rate](http://www.usatoday.com/story/money/business/2013/10/23/big-companies-pay-no-taxes/2480281/) ---
**Author:** ![Cerealbox](https://avatars.discourse-cdn.com/v4/letter/c/7ab992/32.png) [@Cerealbox](https://boards.straightdope.com/u/Cerealbox)\ **Post date:** [April 30, 2014, 6:58am UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/26 "2014-04-30T06:58:30Z")
Investors (like Warren Buffet) do not make money by picking “good” stocks. Rather, they create portfolios which will behave favorably in a variety of circumstances and events. Its not “what is the true value of the stock”, but “what is this stock worth to me?” ---
**Author:** ![Cerealbox](https://avatars.discourse-cdn.com/v4/letter/c/7ab992/32.png) [@Cerealbox](https://boards.straightdope.com/u/Cerealbox)\ **Post date:** [April 30, 2014, 7:07am UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/27 "2014-04-30T07:07:33Z")
Oh and if you’re interested in the veracity of the financial statements, look at their methodology disclised in the notes, read the audit report, and I think the PCAOB might even have extra information on the quality of the audit. Also, the company will often field questions with analysts. There are public discussions of a company often. Plus just comparing their companies numbers with similiar companies. I mean, many very smart people do this stuff for a living. It can get complicated depending on where you wanna set the bar. ---
**Author:** ![Ken001](https://avatars.discourse-cdn.com/v4/letter/k/43a26b/32.png) [@Ken001](https://boards.straightdope.com/u/Ken001)\ **Post date:** [April 30, 2014, 8:59am UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/28 "2014-04-30T08:59:31Z")
> [@Jonathan\_Chance](#): > > There’s no real ‘secret’ to stock picking. Just use common sense. > > 1. Does the company have a long track record? > 2. Is the management stable? > > Those two things will do you OK in the vast majority of cases. Oh I wish it were so. A Wall Street investment company founded in 1960, had consistent and often outstanding results for 48 years. Think about that: 48 years. Bernard L. Madoff Investment Securities LLC. ---
**Author:** ![Telemark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/telemark/32/372_2.png) [@Telemark](https://boards.straightdope.com/u/Telemark)\ **Post date:** [April 30, 2014, 12:54pm UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/29 "2014-04-30T12:54:37Z")
> [@Ken001](#): > > Oh I wish it were so. Did you miss the part about “vast majority of cases”? There will always be exceptions to the rule. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [April 30, 2014, 8:41pm UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/30 "2014-04-30T20:41:22Z")
> [@Telemark](#): > > Did you miss the part about “vast majority of cases”? There will always be exceptions to the rule. That rule was unsubstantiated. For an example of how such a strategy can deliver sup-par returns consider [the Nifty Fifty](https://en.wikipedia.org/wiki/Nifty_Fifty). They were called, “One decision stocks.” ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [April 30, 2014, 8:45pm UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/31 "2014-04-30T20:45:54Z")
> [@Cerealbox](#): > > Investors (like Warren Buffet) do not make money by picking “good” stocks. Rather, they create portfolios which will behave favorably in a variety of circumstances and events. Its not “what is the true value of the stock”, but “what is this stock worth to me?” Cite that Buffet aims for portfolio diversification? Berkshire Hathaway is rather exposed to the insurance industry. (You might be correct, but my perception is that Buffet seeks “Wide motes” which is a different sort of strategy. I don’t recall any argument of his that emphasized that a particular combination of stocks was better than each taken singularly.) ---
**Author:** ![Bill\_Door](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@Bill\_Door](https://boards.straightdope.com/u/Bill_Door)\ **Post date:** [May 2, 2014, 3:35pm UTC](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323/34 "2014-05-02T15:35:25Z")
> [@Measure\_for\_Measure](#): > > Cite that Buffet aims for portfolio diversification? Berkshire Hathaway is rather exposed to the insurance industry. (You might be correct, but my perception is that Buffet seeks “Wide motes” which is a different sort of strategy. I don’t recall any argument of his that emphasized that a particular combination of stocks was better than each taken singularly.) I agree with **Measure for Measure**. Buffet is markedly non diversified. While he does have 43 stocks in his porfolio according to CNBC’s tracking of his SEC reports, at a closer look 81% of his holdings are in only 10 stocks, and 62% are in only 4 stocks. I don’t see a lot of insurance exposure, but 40% of the holdings are in finance and banking, almost 22% in Wells Fargo and a little over 12% in American Express. He does have a piece of Goldman Sachs, but it’s less than 2% of his holdings. Not quite Bernie Madoff. [Previous page](https://boards.straightdope.com/t/how-can-i-be-sure-whether-a-company-is-profitable-or-likely-to-fail/686323.md?page=1)