Catalysts are factors affecting stocks
Q: When someone refers to a company’s “catalysts,” what is she talking about? — B.G., Shenandoah, Iowa
A: She’s referring to things that could cause a stock’s value to change.
Savvy investors aim to invest in healthy and growing companies whose stocks seem to be undervalued, because those stock prices can be expected to eventually approach (or exceed) their fair values. But when and why will the stock prices rise? It will often be due to positive catalysts. Thus, when studying a company, try to identify positive catalysts, which could be a strong earnings report, an expected acquisition, the launch of a product, new legislation, new contracts, a legal victory, a new technology, a housing boom or the end of a recession, among other possibilities.
A catalyst for a biotechnology company could be Food and Drug Administration approval of a promising new drug.
There are negative catalysts, too, of course, that could hurt a company’s progress. offers us valuable insights. Meet Seth Klarman: He’s not a household name, but he’s well-respected in the investment community, recently managing some $30 billion in hedge-fund money and having written the seminal book “Margin of Safety,” which is out of print but can be found for hundreds of dollars online.
How good an investor is he? Well, he has reportedly lost money in only three of the past 34 years, and his annual return from inception through 2015 is reportedly about 16 percent.
Here are words of wisdom from Klarman:
■ “Every security or asset is a ‘buy’ at one price, a ‘hold’ at a higher price and a ‘sell’ at some still-higher price.”
This is a great reminder that while it might be clear that a certain company is likely to prosper over many years, its stock isn’t necessarily a good buy at all times. For best results, we should aim to buy stocks when they appear undervalued.
■ “We continue to adhere to a common-sense view of risk: how much we can lose and the probability of losing it. While this perspective may seem over(ly) simplistic or even hopelessly outdated, we believe it provides a vital clarity about the true risks in investing.”
Many investors focus on the potential upside of an investment without sufficiently considering the possible downside. All companies face risks, and we need to consider them.
■ “If someone asked me to invest their money with the goal of turning a quick profit over the next six to 12 months, I’d have no idea how.”
This emphasizes how impossible it is to know what any given stock or the entire market will do over the short term — which is why we should keep any shortterm money out of the stock market. Long-term investments in great companies or in the overall market, on the other hand, are likely to increase in value.
■ “Never stop reading.” Indeed — it’s what the smartest investors do.
Foolish trivia: Name that company
I trace my roots to the 1906 founding of the Haloid Photographic Co., which originally sold photographic paper and equipment in Rochester, New York. My business was transformed once I agreed to manufacture newfangled electrophotography machines that created images via powdered ink and static electricity. Many years later, my famous “Brother Dominic” TV commercials helped sell them. Many technologies, such as personal computers and Ethernet networking, were pioneered at my famous research center in Palo Alto, California. Today, based in Connecticut, I hold more than 11,000 patents and rake in more than $10 billion annually. Who am I?
Last week’s trivia answer
I trace my roots to 1912, when two aircraft companies were formed that would eventually form me (in 1995). My early seaplanes broke speed and distance records. Today, based in Maryland, I’m a global aerospace giant, employing about 97,000 people. (Answer: Lockheed Martin)