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Investing In Big Companies

Provided By www.investmentoption.org

Let's assume that in order to be called a "giant," a corporation must have at least a billion dollars' worth of property value. How many giants are there?

Suppose we say that to be called a "giant" a corporation must have property valued at a billion dollars—a 1,000 times a $1 million dollars. How many companies are this big? In 1956 there were about 70. Not including financial institutions such as banks and life-insurance companies, the largest four corporations were Bell Telephone, $16 billion; Standard Oil of New Jersey, $8 billion; General Motors, $7 billion; and U.S. Steel, $4 billion. The next five, each having $2.5 billion or more, were Ford Motor, Gulf Oil, Socony Mobil Oil, E. I. duPont and the Texas Co.

One reason why a corporation can be so large is that its operations cover so much territory. In any one city a moderate-sized company may look big because its activity is concentrated locally. But the American giants do business in a great many locations. The Bell Telephone System has 9,000 "central" offices. General Motors sells its automobiles through local dealers in almost every town in the United States, and in many places abroad. The Metropolitan Life Insurance Company has 20,000 sales agents scattered throughout North America.

The largest American oil companies do not have retail dealers everywhere in this country, but they operate in many foreign areas. They have petroleum wells in the Caribbean and the Persian Gulf areas, and they sell in parts of every continent of the world. It is likely that in foreign fields, American corporations are still in their infancy; in the future a typical giant corporation may operate throughout the world, with most of its volume outside the United States and its size several times as large as today.

Bigness impresses most of us, and we like to be associated with large and prominent organizations. Doubtless this comes from an animal instinct for self-preservation. When we hear that a business is large, we assume that it is now, and will continue to be, more successful than a small firm. The facts may largely justify this feeling. A corporation that has grown until it has hundreds of thousands of employees, and has property valued at billions of dollars, is self-evident proof that it has enjoyed some degree of good management.

A giant corporation, if well organized, has several executives, each of whom is capable of filling the chief officer's job. This means that the company cannot be greatly disturbed by the loss of one or two officers. An investor can get more information about a large corporation. Government regulations do not require a small firm to furnish as much data as large ones must. And beyond the government requirements, a big outfit with several hundred thousand stockholders knows that it must tell enough to satisfy its present shareholders, and to cause more investors to join. Also, because investors are more apt to be interested in the prominent corporations, a broker or dealer or adviser on stock keeps himself better informed on those companies.

Buying stock in a small company is more of a gamble both in the lack of information on its present condition and in estimating its future chances. If a company, now small, becomes highly successful, the value of a share of its stock will rise further than is possible in a larger concern. On the other hand, a small business is more likely to do poorly, or even to fail completely, as thousands do every year. So if an investor limits his choice to one of the two extremes, either a giant or a baby, he is much safer in buying stock in the giant. But nobody compels him to go to either extreme.

This article is a small snippet from www.investmentoption.org

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