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The myth
The track record is one of the things people look at before investing in a company. Large companies are generally seen as “safe” investments since they typically have a long history of good performance.
Most big companies have been around for a while. Their longevity may demonstrate an ability to weather downturns, survive economic or internal crises, and remain competitive in their industries.
Investors who value stability are especially drawn to these companies, expecting them to grow consistently no matter the economic conditions.
The reality
The largest, most-established companies are often the ones whose stocks become part of the main indices. Locally, top firms are included in the Philippine Stock Exchange Composite Index (PSEi) and are considered blue chips.
If you’re interested in investing in stocks, these companies are probably among your top choices when you get started. After all, they are the most traded and are known to have reliable performance.
A lot of these companies are also household names. Though stocks are considered a high-risk investment, you might feel more comfortable investing in them if their products and/or services have already earned your trust.
Additionally, big companies with extensive financial resources have a high chance of getting good credit ratings. If they want to raise money by issuing bonds, their bonds can be attractive for investors seeking moderate risk.
However, when looking for a relatively “safe” investment, it’s wise to remember that no investment is completely free from risk. Company shares can lose their blue-chip status and even the largest firms sometimes fail to recover from major crises.
Companies also tend to perform differently under the same circumstances. Some may struggle while others reap benefits following certain events or trends.
It’s best to consider the specific strengths, weaknesses, and opportunities of each business by looking at their fundamentals.
Your unique goals, investor profile, and diversification needs should also come into play when choosing where to invest your money.
For example, if you aim for higher returns and have a higher risk tolerance, you may want to explore investing in smaller companies with the potential to grow at faster rates.
Large firms tend to grow at a steady but slow pace. Price swings might not be as volatile compared to small and mid-sized companies.
The lower volatility also means, however, that any increase in prices may be comparatively smaller.
Verdict: Partly true.
Bigger companies tend to be more stable than smaller ones but they’re not completely risk-free. Safety can also be relative, and no asset is a safe bet all the time.
Though investing in big companies is a common entry point for newbies, it may not be wise to invest exclusively in large businesses just because of their status.
There are other factors to consider when looking for suitable investments. There may be an opportunity for you to diversify by investing in a mix of companies of varying sizes and from different industries.
