The capacity to suffer for any company you intend to invest in is a factor that must be considered before making any investment. The ability of the management to make long-term investments in its operations that either support or widen its profit margin without raising any risks in the process could be defined as the ‘capacity to suffer’.
Even if the company you intend to invest in is a giant in the respective industry, this does not make it one of the best when it comes to capacity to suffer. Always keep a keen eye on the long-term success plan for the company especially if you the company management is worried about how value accretive investment can affect the earnings per share in the current financial period and how the market is likely to react to any temporary weakness.
What to keep an eye on
Consider it from a different angle. If you are one of the patient investors in the company whose management team is renowned for its impatient, then you had better get ready for an unpleasant outcome from your investment. The solution to this problem is to for family owned business to invest with since they are better at ignoring short-term obsession of the market as well as activist investors.
When you start researching for new ideas and business that is not family owned, it is important to look through a list of company with numerous and major shareholders. Such companies are usually mutual funds and institutions. With the list of major owners of the business, the next step includes taking a clear look at each fund’s website to figure out more about the business’s philosophy as well as their approach. Is the business management long term focused or do they simply have a high portfolio turnover. It is also important to check if the business have the held any of the stocks in question.