Hello friends, in today’s article we see chapter 8 of common stocks and uncommon profits books summary. In this chapter, the author explains the Five Don’t for Investors. This is an important chapter for investors from common stocks and uncommon profits book.
This chapter explains the five things investor must have to avoid this help you to avoid big loses by using common sense behavior.
1) Don’t Buy into Promotional Companies:
Those companies are promotional companies that have just started or about to start are promotional companies
For successful investing, we need to find out companies, who developing new products and processes and exploiting new markets.
Promotional companies do this but you have to see any company without at least two years of commercial operation and one year of operating profits in the promotional stage. (Common Stocks and Uncommon Profits book)
Entrepreneurs usually have only one skill many be production and they lack marketing skills or superb salesman that lack other skills like production or product quality.
Promotional Companies can give some work to others to perform well like, finance is done by other investment fund or special group that have the capability to do deals with weakness of companies entrepreneurs (high-level businessman quality talent).
Leave this investment for investment or finance specialized groups means promotional companies leave for these people.
2) Don’t ignore a good stock just because it is traded over the counter ( not in stocks exchange list):
Don’t ignore outstanding company stocks because just, they don’t trade on exchange those stocks traded on the exchange, which have maximum liquidity and marketable. (Common Stocks and Uncommon Profits book)
But broker has the network to buy those stocks that not trade on the exchange to buy and sell stocks those not on exchange.
From this, those stocks get the liquidity and marketability of unlisted stocks.
Author Says, Buying and selling unlisted stocks from a broker, before that, you have to choose brokers, like that you choose doctor and lawyer.
Unlisted outstanding stocks liquidity is more than those stocks, which that exchange in small regional stocks exchanges.
If a company is outstanding so their buyers are maximum whatever that company is unlisted or what.
But the company must be outstanding and the broker is honest and able to do easily trade of that company that not listed in stocks exchange. (Common Stocks and Uncommon Profits book)
3) Don’t buy a stock just because you like the tone of its annual reports:
Most of the investor is often influenced by the wording and comments in the annual report.
This tone may also reflect the skill of the public relations team in creating an impression about the company in the public mind.
If an Annual report fails to give proper information about matters of real significance, such companies don’t provide for successful investment.
4) Don’t assume that the high price at which a stock may be selling in relation to earnings is necessarily ………
…………….an indication that further growth in those earnings has largely been already discounted in the price.
let’s start with examples, If a company name is XYZ, this company in the past 30 years, they grow profits and sales and they qualify the 15 points of outstanding company. (Common Stocks and Uncommon Profits book)
And this company is focused on the new product from that they also grow in future as they grow in past.
Management expects in the next five years the earning is double.
Stocks are selling at 20-30 times higher form current value, but their current earning is twice the P/E Ratio of average stocks on DJIA. (Common Stocks and Uncommon Profits book)
let’s start with what people things about this
Those people who think it is overpriced are assuming that 5 years from now the stocks will sell at some multiples of DJIA (Those people things or speak stocks is overpriced,
Those people assume that after five years, the stock’s P/E ratio is half of the current P/E ratio. But past 30 years the P/E ratio is always twice the DJIA why not stay in the future and earning is double in five years).
If work is not on new product and existing product potential is have to over that time situation is different this time may happen stocks P/E ratio is fall.
But we know the company is developing new products and industries also group the P/E ratio multiple whatever comes that is close to the industry P/E so some stocks which at first glance appear highest priced may upon analysis, be the biggest bargains.
Now let’s talk about five don’t for investor
5) Don’t quibble over eighths and quarters:
Authors give the actual story, “An able investor want to buy 100 shares of a company that listed on NYSE
Stocks price that time is $35.50 and they put the order for $35. and they want to save $.50 for each means $50 for 100 shares. (Common Stocks and Uncommon Profits book)
The stocks never sold at $35 and now these stocks almost 25 years later, stocks are selling at $500.
That person to want in an attempt to save $50, investors failed to make $46,500.
Because $46,500 is 930 times of $50.
It means this investor would have to save $50 for 930 times to break these stocks.
This is called Financial stupidity
Authors say for the small investor the rule is simple: If stocks are right and market time is also come to buy then buy it for market price.
To save for cents or a dollar you lose millions of dollars in the long term.
If stocks do not get a million dollars from investment then why you invest in that stocks. common sense
For big investors that want to buy 1,000 shares so for this, the rule is not simple,
If the trading volume is low, an attempt to buy at the market will cause a sizable increase in stocks price which will produce two effects:
- Might arouse the interest of others who also wanted to buy
- sellers might plan, thus also stop seeling and hold in hoping that the rise might be continued.
For a big investor, hire a broker and let him buy systematically for you, because buy from big investors, the stock price does not go high.
This is all about the common stocks and uncommon profit, chapter 8 five don’t for investors
If you are small investors then please avoid Financial stupidity, Because mos of the investor do this.
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