Investing in Franchise Value

Juniors' SO® Cable Knit Cropped Button-Front Cardigan
This cropped juniors' cardigan from SO is the perfect pick for any wardrobe.

It is important that you purchase stock that will provide long-term benefits to your portfolio. One way to do this is to invest in businesses that possess significant franchise value. With over 14,000 publicly traded companies in the US, it is important that you spend the time finding the right companies to invest in.

Companies with franchise value are actually easily identified. Franchise value is the popularity of a brand or product with consumers. Think of Clorox, Kleenex, Coke and Campbells. These are the types of companies with high franchise value. Everyone knows what they are and often use them to refer to an entire group of items.

For example, do you refer to plastic bags as Ziplocks? Do you think of a zippo when considering a nice lighter for a gift? What are the brands that immediately come to your mind when you are looking to purchase an item? These are items that have become high in franchise value.

If you are looking at a business to invest in, consider its franchise value.

Is this a brand that you would purchase over a cheaper, generic brand?

If the brand was not shipped in a certain store, would you leave and shop for the item?

If you were to go into direct competition with this product, would you be successful?

If a product has a high consumer demand, the company will usually raise prices. This makes the company more profitable. The company that does not have franchise value must compete on price alone – it tries to undersell the franchise valued product.

The return you receive from an investment is always tied to the price you pay. Remember, paying too much for a stock will move you out of investment and into speculation – you are just guessing that the stock will move upwards. If you are looking at an excellent company with strong franchise value, you are now looking at a slightly different situation. Most investors will benefit from going ahead and paying the high price for the stock and looking to long-term returns. As long as the company remains stable, holding the stock indefinitely may be the wisest investment path you can take.

It is important to not only look at the price of a stock, but at the company as well. Do your research. Know the risks. Read up on the company, its history and its plans. Look to see if the management is stable and shareholders are happy. There are many factors that can determine whether or not a company is a good investment option. Take the time to learn these factors. Buy on longevity, not on price alone.