Hello friends, In today’s article we see what to buy: applying this to your own need, from chapter 4 of Common stocks and Uncommon Profits book. Chapter 4 helps you to find which stocks we have to buy and what is the reason for that from the Common stocks and Uncommon Profits book.
What to buy: Applying this to your own needs:-Common Stocks & Uncommon Profits: Chapter 4
After studying the 15th point, we have some, like, This work is done by myself, or finds some expert.
There are three stocks, Large-cap, Small Cap, Mid Cap category stocks. So between that which stocks we have to choose.
Which stocks do we have to buy, those that pay the dividend and without paying the dividend stock? this all depends on your need.
People have misconceptions about successful investors. They are thinking, Investors are bookish person, that only read a balance sheet and analyze the financial statements. (Common Stocks & Uncommon Profits: Chapter 4)
If you think like that and work like that, then you get the stock at a bargain price. But after some time these stocks become the value trap.
So, friends, this is the book for making money while taking low risks.
This is only happening by buying growth stocks, and growth stocks are giving each and every decade a 100% return on investment.
So the author only talks about these growth stocks that give 100% return by staying 5 to 10 years. with it.
The authors say, Investor only gives some time to his investment, suppose you have the ability, and time also. (Common Stocks & Uncommon Profits: Chapter 4)
But maybe don’t have time to meet the customer and supplier. If you have time to talk but don’t know to talk to the customers and suppliers and do not know which type of question you have to ask.
If you have all the above things, but don’t have to develop an interest in people to talk with you, that tell you all information about the company.
If you have all this ability, then you may not have judgment power to get the meaning thought on that information or if this also has the ability. (Common Stocks & Uncommon Profits: Chapter 4)
if maybe happen, your geography is not good, for example, you stay in the village and this person is in the city so you can’t meet them.
If you face any of the problems above discussion, then take advice from experts. So don’t try to be your own doctor and lawyer.
So this principle also helps you to find good experts.
If you choose any experts, then you have to see their 5 years records,
If they have a good record then only then give them money. If not then don’t give money.
See advisor is honest and others ask him investment philosophy that studies in this book. then that better adviser then you know how they got the five years return. (Common Stocks & Uncommon Profits: Chapter 4)
by timing the market or investing in the marginal company or following this 15th principle, that is why you have to see his five-year result return.
Three types of the company by following 15 points you get the outstanding company in that.
- Large-caps: Those companies have good profits and better financial positions or also called institution stocks because insurance companies invest in them. For example Dow Chemical, Du Pont, and IBM from 1946 to 1956, three companies’ stocks are going 5X in 10 years and dividend returns go from 2.5X to 8 and 9 % in the original period and this is not an unusual period this is a normal period.
- Small and young companies: they have outstanding management and research scientist are capable for example, Amplex stock in 4 years is going 8X.
- Between large and small-cap companies ( mid-caps): Small companies give you 1000X gain in 10 years. if you are wrong then one dollar penny does not remain, so the skilled investor can be done a mistake.
Large companies losses are usually temporary, if you buy the right time stocks (Common Stocks & Uncommon Profits: Chapter 4)
So what is a good time we see in the next chapter?
How much money invested in large-cap companies stocks gives more profit but not that much, those give small companies.
How much money to invest in large-cap companies’ stocks or how much in a small company all depends on you.
Profits from big companies are minimum the total loss outway, that happens in a small company.
if a small company is successful then they become a large company.
* High-dividend yield vs Low-dividend yield growth stocks:
Small investors can not live on dividends, whatever amount of a dividend of high, because their overall investment is small.
A small investor has to be sufficient emergency money for their circumstances. If after that some money is behind then only invest for the long term.
If investors’ circumstances are like they don’t need dividends, then the author says, they have to invest in the company and have to compound their money. (Common Stocks & Uncommon Profits: Chapter 4)
The author’s personal point of view says Small dividend income is not important as after a few increases in maximum income and the author’s sons have a chance to become wealthy in these stocks.
Every stock depends on two things
- How skillfully do you apply this 15th principle
- Matter of good luck
Good luck is best for one stock, if you have maximum stocks, then luck is an average one. luck only matters when you have only one stock or a few.
the author says previous 35 years that many studies on high dividend stock and low dividend growth stocks. Each stock outperforms in a 5 to 10 years period.
Surprisingly these stocks have increased their dividends such that they were paying greater dividend return on original investment ( though dividend yield is still the low company compared to increased stocks price) than high dividend yield stocks.
So this is all about chapter 4 of common stocks and uncommon profits.