Trends, whether youre talking about skinny jeans or shares,tend to last much longer than you expected.
Basically when a share price viewed over months and years is rising, the market is taking the view that the company will steadily grow its profits over the long-term. Likewise, if the share price is falling, the market is taking the view that the companys profitability is tumbling.
So when you invest for the long term, you need to take a view about whether the company is growing or is in decline.
A storm of change
Tesco(LSE: TSCO)sdomination of the UK grocery market peaked in 2007, as did its share price. Since then, there has been a downward trend, with the share price now halved from its highs.
After the Second World War Britains corner shops and department stores were caught up in a storm of change, with therise of the motor car and the lorry, growing household wealth and the advent of pile it high and sell it cheap. This led to the emergence of the supermarkets.
Today the supermarkets are no longer the upstarts but the incumbents. And they themselves are facing a storm of technological and social change. With barriers to entry crashingdownacross this industry, we have seen an astonishing growth in competition.
In the past, it was the biggest companies that usually won; after all, they had the economies of scale and buying power.In the tech-driven,information-richworld of the future, it will be the most agile and the most creative.
Tesco needs a clear brand, and a clear message
In the midst of all this change, we seem to have forgotten what Tescos brand is all about. The new Chief Executive, Dave Lewis, as an alumnus of Unilever, will know better than most how crucial branding is.
If he can put together a clear marketing message which defines Tesco, if he can sell Tesco to the consumer like Terry Leahy once did, he may yet turn this ship around.
But this will take a lot of time, and a lot of work. Thats why I think Tesco hasnt bottomed yet. The dreadful latest results show that this is a knife which is still falling.
With recovery/turnaround plays such as this, it pays to be patient, keep the share on your watch list, and bide your time. This company still has so many strengths that I find it difficult to believe that it wont eventually be turned around.
The Fool’s five shares to retire on
Much of investing is about seeing beyond the everyday noise to identify a business’s long-term trends.
If you can piece together these trends you can gain a clear picture of the company’s long-term future. We at the Fool have done this for a series of shares which we think you can hold until your retirement, and we have written a free report about our picks.
Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco and Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.