common stocks and uncommon profits pdf

Security Analysis: Chapter 15

December 20, 2021 by Laxman Sonale 2 Comments

Hello friends, in today’s article, we see a summary of chapter 15 of the Security Analysis book by Benjamin Graham and David Dodd. Chapter 15 is about the Technique of Selecting Preferred Stocks for Investment. so let’s see

Previous Chapter 14

The technique of Selecting Preferred Stocks for Investment:-Security Analysis: Chapter 15

In this chapter, the author explains, if we decide to buy the preferred stocks while seeing their disadvantages, so author gives some techniques to select preferred stocks.

The Author Says, ” For preferred stocks, we required to stringent the minimum requirement as compared to bond. So what is the minimum requirement for interest coverage ratio, this given in the following table (image)

Now you can see, in three industry Segments

So for preferred stocks required more high multiple like in public utility is 1.75 of Fixed charges and for preferred stocks earning is 2 times of Fixed charges and Preferred stocks dividend.

Now Come for minimum stock Value requirement, in this also as compare bond and preferred stocks.

In this, you can see for preferred stocks required more. (Security Analysis: Chapter 15)

In public utilities, required 50% more than bond means 1/2 and for preferred stocks, 66.67% means 2/3 ( Bond + Preferred stocks equal)

So in this chapter 15, we discuss both tables and how to calculate this value.

How to calculate Rations?

The first thing is to use the method name is ” Total Deductions method“, for interest coverage ratio to compare with minimum coverage ratio.

So in this method, we have to divide earning by Bond interest + Preferred dividend.

In Bond, we only divide by bond interest but in this, we use both ( bond interest + Preferred dividend)

so some of you say, why not we use the prior deduction method,

Because, we know that, by using the prior deduction method

the result looks like Preferred stocks are more secure than Bond. so that’s why the author uses the total deduction method.

Let’s come in Stock Value Ratios

For Bond, we use in the numerator, stocks equity( common stocks) and divided by funded debt( bonded debt).

For the preferred Stocks case, in the Numerator, We take only common stocks and in the denominator, we take bonded debt + Preferred stocks.

If Suppose You want the stock value ratio, for this preferred stocks are two type

1st Seniority preferred stocks

2nd Seniority preferred stocks

so for this type of preferred stock using the following method

If we want to calculate for 1st seniority preferred stocks Value ratio. so In 1st seniority of preferred stocks in the Nenomenator of equation presents 2nd seniority preferred stocks + common stocks and in the denominator, we can use Bonded debt + 1st preferred stocks. (Security Analysis: Chapter 15)

In Bond, we have to take face value, and 1st preferred stocks we have to take market value.

1st preferred stocks face value we can’t take, because, preferred stocks’ actual par value is different than the stated value.

for this, the author gives example to understand the above statement

e.g, The preferred stocks and this stated par value is $1 but those are preferred stocks holders, they have to get $100 for liquidating preferred stocks.

so the actual par value of that stock is $100, not $1. so for this, we have to use Market Value.

We can see tables(for referring above note page image) in that we say, for Preferred stocks the minimum requirement is more as compared to bonds.

So for seeing this formula, we know that, let’s take

The interest coverage ratio, in the numerator same ( EBIT- earning before interest tax) but in the bond case, we divided by fixed charges, and in the case of the preferred stock, we divided by fixed charges + preferred stocks dividend.

so those are preferred stock coverage is found less, because, we required maximum, as the author gives us

Let’s see in Public utility examples, for the preferred stocks the interest coverage ratio is 2 times. (as given in table by author)

Means, Interest coverage ratio = EBIT / Bond interest + preferred dividend.

Interest Coverage ratio = 2

so, for Bond ( Interest coverage ratio = EBIT / Interest charges )

Now we surprise

so its value is more than 2 times because the denominator is small

If for preferred stocks is 2, so then bond interest coverage ratio is more than 2. obviously by math

So then the author says, ” Yes, the interest coverage ratio for the bond is more than 2, but people thinks, for preferred stocks coverage ratio is have to be lenient or less stringent, (Security Analysis: Chapter 15)

Because, preferred stocks coverage ratios denominator is more, so the value may be small,”

then Author says, This type of thinking is wrong.

Because, in any company have a bond and preferred stocks, and in this company preferred stocks is when safe, then this company bond is safer, with a good margin of safety.

If the bond is less safe then how are preferred stocks safe? ( common sense)

If the coverage ratio is minimum then this is only limited to bond coverage ratio, not for preferred stocks.

that’s why the author takes 2 times the interest coverage ratio for preferred stocks and for bonds only 1.75.

then the author talks about cumulative Issues and Non Cumulative issues

Non-cumulative stocks Issues/ cumulative Stock issues:-

Cumulative Stock issues:- Cumulative preferred stocks are those, in them, the dividend is suspended by the director, so this dividend is accumulated and this dividend is paid later.

But in Non-Cumulative Stock Issues:- In this, if the dividend is suspended, then they are not be recovered or accumulated. So those are new continued dividends, that are only given by the company.

That dividend is missed by the director, that dividend is gone forever.

Then the author says, ” Buying cumulative stocks is better than the Non-cumulative stocks.

Because, in non-cumulative stock problem is, those are common stockholder, they taking advantage, because, the director can suspend, your dividend. in those years also when companies earning is good, and this money is used by the director to improve the company. By this activity, the direct benefit to the common stockholder.

And Your dividend is missed by the company is not given in the next dividend time.

so there is not any benefit for non-cumulative stocks means full loss

On this Non-cumulative Preferred stocks lose, taking benefit by a company means on your expense, taking other profits. (Security Analysis: Chapter 15)

So those are company directors they play in trick, is that

Firstly they suspend your dividend and when they give a dividend to common stocks holder before some time that they give the dividend to the non-cumulative stockholder.

When a company wants to suspend its dividend, so for this they stop the first dividend of the common stockholder and some time after they stop the dividend of preferred stockholders also.

after this difference, the author talks about, ” those 21 preferred stocks, that do good in depression also.

Out of 440 listed stocks on NYSE in 1932, that on 21 stocks is doing good and perform well in depression with any loss.

So those are 440 listed stocks on NYSE in them only 40 (9%) are Non-cumulative preferred stocks.

By knowing this, you may be surprised, those are 21 stocks, that do good in depression, so in them,

the author gives 3 observations, they are as follows.

The number of Non-cumulative issues was higher than cumulative issues, in those 21.
No. of preferred stocks proceeded by bonds were higher than without bonds in those 21. ( as we discussed, in those company, that have only preferred stocks, that’s is good for the preferred stockholder.)
The industry best represented is the snuff business, with three companies.”

(snuff business is a type of business of Tobacco)

So, the author says, ” Buy seeing the only result, we can’t say, non-cumulative stocks is superior.

or we can’t have to say, preferred stocks with the bond is better than, only preferred stocks companies.

or we can’t say, Snuff business is the safe business”

Logically the author says, ” This reverse is best means, the cumulative issue is better and preferred stocks without bond is better. (Security Analysis: Chapter 15)

But this result occurs, it only proves that if this thing does not matter most and maybe desirable but you become successful or not on this things, this observation not affect.

Then the author says, In conclusion

What matters most to success.

Outstanding record of the company for a long period in past
The strong inherent stability of the company
Absence of concrete reason to expect substantial change for worse in the future.

so this is all about chapter 15 of the security Analysis book by Benjamin Graham and David Dodd.

Common Stocks and Uncommon Profits book

May 28, 2021 by Laxman Sonale Leave a Comment

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.

Five don’t for Investor:-Common Stocks and Uncommon Profits book

This chapter explains the five things investor must have to avoid this help you to avoid big losses 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, that develop new products and processes and exploit 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 who lack other skills like production or product quality.

Promotional Companies can give some work to others to perform well, finance is done by other investment funds or special groups 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 the 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 are marketable. (Common Stocks and Uncommon Profits book)

But broker has the network to buy those stocks that are not traded on the exchange to buy and sell stocks those not on the 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, that are exchanged in small regional stock exchanges.

If a company is outstanding so its buyers are maximum whatever that company is unlisted or what.

But the company must be outstanding and the broker is honest and able to easily trade that company that is not listed on the 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 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 earnings are double.

Stocks are selling at 20-30 times higher form current value, but their current earnings are 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 earnings 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:

The authors give the actual story, “An able investor wants to buy 100 shares of a company that listed on NYSE

Stocks price at 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 do 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 buying from big investors, the stock price does not go high.

This is all about the common stocks and uncommon profit, chapter 8 five doesn’t for investors

If you are small investor then please avoid Financial stupidity, Because mos of the investor do this.

Previous Chapter

Visit another Value investing website:

If you want to learn more about fiance then read follow books summary

The Intelligent Investor by Benjamin Graham

One Up On Wall Street by Peter Lynch

What is the dividend?

May 13, 2021 by Laxman Sonale 1 Comment

Hello friends, in today’s article we see the what is the dividend? or the hullabaloo about dividends from chapter 7 of common stocks and uncommon profits book. in chapter 7 Philip A. Fisher explains what is the dividend and how they important for the small investor. If you want to dividend, then how much money you have to save in your bank account and how much money you have to put in your account.

Previous Chapter 6

What is the dividend?

There is one quote from Warren Buffett that says, ” I am 85% is ben graham and 15% Philip A. fisher” Because they follow benjamin graham as a mentor,

but after charlie Munger tells them to invest in a better company than an undervalued company, from that warren buffet follow the scuttlebutt method from this book.

Let’s start with chapter 7,

The author says, whenever a company that has been paying no dividend, or a small one decided to pay a substantial dividend.

the board of directors says the time has come to do something for shareholders. The company giving dividends to shareholders is doing good or without paying dividends a company can do better. for these two cases to happen let’s see

Two cases happen when a company retains earnings:

1 ) Shareholders get benefits from retained earnings when the company spends money on building a new plant and launching new products or developing assets.

2) Shareholders get no benefit from retained earnings: In this situation, three reasons may affect.

a) Management piles up cash and liquid assets far beyond the needs of a business to get a sense of confidence and security.

b) When Substandard management gets a sub-normal return on capital already in business and uses retained earnings to enlarge inefficient business to justify bigger salaries.

c) Earnings are vitally needed yet cannot increases shareholder value

for examples

A) Spending money on assets like A.C, If in your store there is no any A.C like instrument then customer go the competitor’s store. If you don’t spend money on this instrument, then they can’t increase the volume of business.

B) Other examples, is Depreciation expense this expense comes when the value of that machinery is in end, then you have to replace the whole machinery and equipment.

( After 10 years machine working capacity is over, then the price of that machine is going high in these 10 years, so the cost has to take from the retained earnings.)

If the company have opportunity to increase earnings while invest retained earnings or dividend. so the company doesn’t need to give a dividend to the shareholder.

the company doesn’t have to increase the yield of dividend instead that invest in somewhere to increase the value of that money.

There are some misconceptions about dividends, let’s see what is that

Misconceptions:

1 ) If a company has increased its earnings and does not raise dividends, it is said that This is favoring large stockholders at the expense of small ones because people think,

Their investment is big so dividends are also big but tax brackets also big. The Capital gain tax is minimum than the dividend income tax rate.

The authors say, ” If you give small shareholder dividend, firstly company give the dividend expense tax after shareholder give dividend income tax pay,

whatever the small tax bracket is and shareholder wants to invest that money in some other stocks, then you have to pay the trading cost.

So cutting money from this all stuff, you get very low in form of a dividend.”

The small investor does not get that much money, which affords the expense of his home, because their investment is small.

If the Investor does not needs a dividend for home expenses, then the company does not need to give a dividend, instead,

the company can do invest in another new opportunity to increase company value or stocks.

2) Dividend return is a factor of safety: (misconception)

Because company give high yield on dividend, then stocks not overprice or not fall

but studies show bad stock return give those stocks, that give high yield dividend or not a low dividend yield company.

The author recommends don’t buy these stocks of a company, that focus on the dividend yield. Which are difficult in the company.

Regularity and dependability of dividend:

The most important thing about retained earnings is their regularity and dependability.

The companies that have fixed retained earning policies enjoy a high p/E multiple.

According to policies is based on a fixed percentage of earnings to be returns and other remaining pay the dividend.

The dividend payout ratio, when increase, the company is sure by paying dividend company is capable to get benefit from the funds by using them,

we can and advantage of new opportunity and the new payout ratio is maintained while business is going slow downtrend.

Whatever the companies policy, that doesn’t matter, but that policy does not change, with the time, company get the permanent investor, those investor is happy with that policy.

If a policy is consistent, then retained earnings yield is ending.

if you want outstanding profit the don’t focus on the retained earnings.

the weird things about retained earings are that ” those people give less attention on a retained earning that people get the maximum retained earnings.”

5 to 10 years this time is the best dividend return give from low yield stocks, those his earnings retain and grow and they increase that many dividends then high yield stocks stay behind.

But remember the dividend policy is consistent if any company change his policy regularly is not attract the permanent dividend so this company stocks are too long range is not good.

Next Chapter

When to sell stocks

May 8, 2021 by Laxman Sonale 1 Comment

Hello friends, in today’s article we see when to sell stocks from chapter 6 of the common stocks and uncommon profits book. This chapter helps you to understand the selling of outstanding company stocks. The most important question is: when to sell stocks? so let’s see their merit and demerit of selling stocks.

When to sell stocks:

The author says ” if you are selling stocks, then we have an infinite reason for that for example, selling stocks for child education, starting own business and buying own house.”

This above all reason is out of this book. The author is only focusing on those reasons that have only one purpose making maximum profits by selling stocks.

If you are buying stocks on the basis of the previous chapter. Then you have only three reasons for selling stocks.

1 ) The mistake has been made in the Original purchase time:

You have made the mistake while buying stocks that are known from the facts of the company. Now this time the prospect of the company is not good as before buying time. So in this situation, you have to control your emotion.
You have to remember this, ” big investors also do big mistakes”, so sell stocks as quickly as.
don’t hold that stocks for the long term, while listening to your ego. In this situation say no to that stocks and don’t run from accepting mistakes. so most of the investors lose their money while listening to their ego and holding that stocks. (When to sell stocks)
In this situation, you have two types of losing
1) the more you hold, the more you lose: Instead of that sell these stocks and buying the better stocks then these stocks hold for the long term so this stock’s profit is more than the previous stocks we hold for the long term.
2) Profits have also gone: If you hold those stocks then you lose the profit of better stocks also.
If you really want a 100% gain on the investment of your lifetime saving, over a period of the year, then don’t think of a 10% loss or 5% gain. don’t lose energy while thinking of that loss and gain.
Review your mistake carefully, learn from that mistake, and go forward.
In my opinion, Those investors buy the stocks, while analyzing them properly, and after some time those stocks go bad. They going bad they have the fact of that happening and show the reason for that happening.
But investors never believe in that fact, because they are very much attached to that stock like attached to a girlfriend. (When to sell stocks)
So Those are a trader, these people are not attached to stocks whatever stocks. they only put the Stop Loss option. If they had made a mistake, then they don’t lose lots of money because of the stop loss option and they play other trades. I am not saying to become a trader and put the stock loose. I am saying that taking the quality from traders is detachment from stocks. and learn this skill of detachment.

2) If the company no longer qualifies in regards to the 15 points.

This situation has two reasons for this cause of selling stocks

A) Determination of Management:

Management of the company is long after time getting success. And they are sufficient with that success and after that, they don’t work like before they do to got success.
The new management of the company does not believe in the old management policy. The Old management policy helped to get the success of the company. (When to sell stocks)
In this situation, you have to sell stocks as quickly as, whatever the general market outlook. If the market is bullish or bearish what is the capital gain TAX?

B) Company no longer has the prospects of new market and new products:

If the above point is taken, then that is why the growth potential of the company decreases,s and then the stock price is also decreased.
So in this situation, you can sell these stocks slowly, but you have to consider, the time of selling stocks comes.
Stocks can be sold at more leisure than management deterioration, but the time to sell has come.

3) Switching to more attractive company stocks:

If an investor is very much sure about other stocks are better than these stocks in growth prospects.
then after that, you can switch whatever capital gain tax is applicable while selling these stocks. you can handsomely switch to better stocks.
So this that not mean switching each and every day and becoming a trader.

Above these three reasons from the author, the author gives another reason for selling stocks according to the financial institute, consider to sell stocks and their thought and the authors thought on their thinking.

so let’s see financial community’s reason for selling stocks is good or bad

Reasons the financial community gives for selling stocks:

1) General Market decline is on the horizon:

The general market forecast is only a guess, you have to find out the real problem in the company and get the knowledge that does not depend on a guess. (When to sell stocks)
If you sell stocks and the bear market does not come, then you got a loss and when investors buy stocks and capital gain tax is also applied. this looks like pure stupidity.

2) Outstanding stock has become overpriced:

Overpriced means the P/E ratio of the company is more than the investor thinks this range is a good P/E ratio. This P/E ratio is more multiple than the P/E ratio, which we are considering is good. This can get while considering with other company.
No one tells you the good price of the P/E ratio.
In any common think good stocks of the company will sell and should sell at a higher P/E multiple.
The author says, ” if you understand the stocks is go high as compared to its a fundamental value and 35% can fall down but have a good prospect of the company. then You have to maintain the position in that stock and not sell at all. (When to sell stocks)

3) Most ridiculous of all is that Stocks has had a huge advance:

This stock’s potential is gone and buying the new stocks and saying these stocks do not go high.
The author explains with examples, ” Suppose you have the last day of your college life. Everyone asks you to give them 10X of their first-year earnings.
instead of that, they give you 25% of his every year earnings for the rest of his life. so you don’t have that much money to give each and every classmate in your class.
You can give only three classmates. In this situation you can’t see who your friends are, you directly see which student in the class is clever and those got big earnings in the coming future year.
You choose three people, and after 10 years, one of your classmates, get outstanding success. He gets promotion on promotion and gets the top executive post in his company.
So the author says, tell me in this situation, you can sell me a contract of those friends that got great success,
because only one reason is that they get the 600% return on your investment and buy those classmate contract that has the same earnings before 10 years and after also.
You think like this, a classmate does not develop and has the ability to develop. this is like the above third reason for the financial community. (When to sell stocks)
Now you say, a college classmate and company stocks are both different things.
the author says, yes one big difference is, our outstanding classmate gets possible death early is not but, he will die one day, definitely.
After his death, we don’t get 25% of his earnings.
But a company doesn’t have a lifespan whatever death of the founder has happened, the company is still running, generation after generation.
Those quality and management policy is the same and they are hiring new quality management.
For this the author says, this whole chapter in one is

“If the job has been correctly done when stock is purchased, the time to sell it – Almost Never..”

This is all about when to sell stocks from chapter 6 of common stocks and uncommon profits book

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When to buy stocks of outstanding company

April 17, 2021 by Laxman Sonale 7 Comments

Hello friends, in today’s article we see when to buy stocks from common stocks and uncommon profits book. this chapter helps you to when to buy stocks of outstanding company. If you buy the stocks at right time then only then you make the maximum money, so that’s why buying time is very much important.

Previous Chapter 4

When to buy stocks:

Up to here, we know that how to make money in the stock market. the best way to make money in the stock market is to invest in an outstanding company. The outstanding company is found by Scuttlebutt Method and 15 points of outstanding company.

Now you found an outstanding company, and that have a good profits margin and have good growth in the future. So the question is here, which is a good time for this outstanding company to invest.

The author says, ” buying a right company and hold for the long term, then you get some profits in every time.”

But you need maximum profits, then you have to think some points and buy on right time stocks.

you have done the most difficult part, is finding an outstanding company, now give some more effort to time the outstanding company stocks. then you have to learn some principles of buying right time stocks.

The author says, ” If you buy outstanding company stocks before 1929, stocks market crash, then after 25 years form buying, you only get little profits. So there is buying stocks at right time is the most important thing.

Timing an outstanding company, the normal method is to collect lots of economic data and apply then and analyze general business forecast and see a good situation or bad situation of an outstanding company.

the author says, ” This looks good method but practically is not good because forecast result is not good for taking risk of life time-saving.”

The right way is to understand the growth stocks’ nature, then you get good stocks. An outstanding company is those are they stay forward in Industry and work on developing a new product by using new process techniques. So doing this company gets lots of expense and some years get minimum profits.

here, the author tries to say that to understand the cycle of business and their product, like some news is an outstanding company is doing some good product and then the price is going high of that stocks. And again news comes, the plant is operating successfully, then also stocks prices go high.

But when difficulties are coming then the operating cost of that plant is going high and profits going down, so people sell as fast as they buy those stocks, then stocks price is going down.

And finally plant is running smoothly, and a two-day going rally on stock prices, but in the next quarter sales and promotion cost minimizes the profits, and now news spread is management has blundered with the company, and stock prices are going low up to least years stocks price.

So this is the best time to buy in this company.

Once the extra sales efforts make the first plant to pay normal sales effort enough for the upcoming year to establish another plant for the company.

So now company know the difficulties of running smoothly plant so 2 to 5 plant running smoothly and it is easy to establish.

that time 5th plant is run an full speed that time company is very big, for to develop new cycle product without profits or stocks price fall.

let’s see the examples of three companies

1.Americal Cyanamid:

These company stocks are compared to other company stocks, trade-in low multiple of P/E.

So new management is come and doing cost-cutting with efficiently to run efficient and spend money of new plant with complex engineering and plant does not work on schedule, so this time is good to buy this company stocks.

In five years this company earnings increased by 70% and stocks returned 163% in their price. but the author sells this company stocks at 110% return on stock prices. Because other companies long-range outlook is better than this company and company chemical business is not improved as compared to other companies and company is trying to enter in the highly competitive textile business.

Which time is good to sell see in next chapter 6

The author says, his decision is good or bad also is only knows the future.

2.Food Machinery and chemical corporation

This Company in world war II, before that they make the different machinery for different business, but in world war II, they making guns, rifles,barud, etc.

This company is going in the chemical business and maintaining the cyclical tendency of the machinery business, and separate companies are acquired and no one interested to buy this company stocks, so this is right to buy this company stocks.

So Top management is ready to hiring other peoples and promoting internal employees. and also doing to fix the old plant problem and run them a better way. Incurred abnormal expenses for 1995 to 1957.

Finally chemical business runs good and profit increases and the P/E multiple is also improved. In some years this company gets a 102% gain in stock prices.

3.Company well-known for its excellent labor relations:

In this company the size is growing at which friction happened and the relation is going bad and one new product also fails, that’s why EPS and stocks prices are going down.

So this point 1, their stock is good for buying.

After that management made plans to correct this situation quickly. After some time another strike happens and the stocks prices again go down.

So this is point 2 when stock is good to buy.

If you buy the stock at point A, get the profits are up to 90% and if you buy stocks at point 2, you get 50% profits.

The authors say’s, ” there is not necessary to have a problem in a company and saying that time is good opportunity to buy.”

So there is another situation also, for example, A new plant expense is up to 10 million dollars.

When the plant is operating at full speed, an engineer checks that plant and they found some problem in that, and this problem is fixed by making a 1.5 million dollar expense i.e 15% more capital to increase output by 40%.

So no additional overhead because the plant is already in operation so the profit margin will increases.

So from this example, the common things are that the EPS is improved in coming years, but this increased price has not yet produced on upward more in the price of that company share.

Whenever this type of condition is coming, then that time is good to buy, and stocks are in buying range. if this situation is not then investors also make money in the long term by buying outstanding company but profit is little.

Suppose investors find out the outstanding company that is good on 15th points and a good time is also come to buy. Suppose in the company there are some temporary issues is going what investor do then do invest in all money in that stocks by ignoring the business cycle?

If you buy stock and depression is coming and 40 to 50% of the stock falls from your buying peak.

So in this situation happen two case

Suppose investors already have some fairly substantial gains, from their previous investments, so this investor can ignore this problem in stocks and guesses of the business cycle and quickly invest by provided not craziness like 1928-29. so this has two advantages of doing this: a) investor is making be on somethings he knows, rather than something which is largely a guess. The company business is improved by talking to people but the business cycle forecast is only a guess, or if the market is down if they invest in that company. b) company is about have an increase in earning so these stocks fall less than other.
In this second case, the investor doesn’t have substantial gains from previous investments or is new to this game. this type of investor can buy appropriate investment asap and stagger the timing of further buying and allow several years still final part of funds are invested. This has some advantage of a) If the market does not decline, then they have good profits from that investment and become the case-1 investor. B) If the market decline during this period, the investor still has funds to take advantage of the decline and use it to buy other stocks. c)If a market decline happens, after the final part of your funds of investment, the gains on earlier purchases would largely offset the decline on more recent ones.

From the all above reason to invest all money, instead that invest slowly for several years is better.

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Common Stocks & Uncommon Profits: Chapter 4

April 7, 2021 by Laxman Sonale 9 Comments

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.

Previous Chapter

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.

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Common Stocks and Uncommon Profits: chapter 1

March 29, 2021 by Laxman Sonale 1 Comment

Hello friends, in today’s article we see chapter 1, clues from the past of common stock and uncommon profits book. In this book, Philip A. Fisher explains how we can learn from history, and how people are makes money in history, in chapter 1, clues from the past of common stocks and uncommon profits book.

Previous introduction part

Common stocks and uncommon profits Chapter 1: Clues from the past

Philip A. Fisher says by seeing the past of the stock market, they get

People come stock market for only one reason is that they want to make money in the market. So in past, they use two methods to make money in the market.

By predicting the business cycle, and betting on that prediction, they buy the stock at the bad time and sell the stock at the good time. So they collect the information from their connection and know when the bad time comes and when to buy that bad stocks. Those people have more connections that prediction is going more accurately and they make the money.
Finding outstanding companies and holding them in the good and bad times of the business economy. So this method helps to get a low risk and maximum profits. (Common Stocks and Uncommon Profits: Chapter 1)

So comparing both methods, you get a good result for the second way than the first one.

And this second method is more profitable for more people, But you have to identify the outstanding company.

So outstanding companies’ opportunities are also available in past and they are also available in present, and they are maximum in number as compared to the present. Because in past there is only a family business present, and they were only run by a family member, whatever the person is they deserve it or not the company, they run the company.

But in no time, if any family business they are not capable to run the business, they hire the most eligible management. (Common Stocks and Uncommon Profits: Chapter 1)

Another thing is that now businesses are spending more money on research or R&D department. This start form Hitler’s time, in Hitler’s army, there are so many researchers going on weapons, so that’s why they become very famous, so every country knew about the power of R&D. So there from each and every country start developing research and spend money on R& D. (Common Stocks and Uncommon Profits: Chapter 1)

So people make the R&D of commercial products also. Now the company’s revenue of about 20% has come from those products that are actually not even present or developed.

So doing research is good, if you don’t do the R&D, is more expensive than doing R&D.

Bond:

A bond is a very bad investment in the long term because the simple one is infection.

This inflation is more than the bond interest. Your money is going negative when you choose the bond as a long-term investment.

So the bond is only profitable when you have to know how to time the interest rate of inflation in short term.

So get the coupons on the bonds they are very less in value as you give them and buy bonds.

The author says in past we have to learn five things, (Common Stocks and Uncommon Profits: Chapter 1)

those people make the maximum return by identifying the outstanding company, those companies whose sales and profits grow fast than the there industry.
When you have found such a company and hold it for a long period of time, get the maximum results.
this is not necessary for this type of company is small-cap, but company management is intelligent enough to handle the problem of the company, identify the new opportunity for the company to grow, and make the company profitable.
Growth comes from research that, that product is developed from the existing product. ( Growth is associated with knowing how to manage research to bring to market economically worthwhile and usually interrelated product lines.
Opportunities that were present before 25-50 years are now present also and more.

So this knows us from the historical stock market, and money-making strategy.

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Read more: one up on wall street book

Common Stocks & Uncommon Profits

March 28, 2021 by Laxman Sonale 1 Comment

Hello friends, in today’s article we see COMMON STOCKS AND UNCOMMON PROFITS book introduction. In this introduction, Philip A. Fisher son write three different prefaces about the COMMON STOCKS AND UNCOMMON PROFITS book. This introduction helps you to know which parts of this book are very very much important and which other parts are the most valuable. So let’s starts with the first preface.

Introduction:-Common Stocks & Uncommon Profits

Ken Fisher wrote three prefaces, let’s starts with the first preface

What I learned from my father’s writing:-Common Stocks & Uncommon Profits

Ken fisher says, his first stock is reverse 10 baggers, which means if they buy the $100 stocks and that stocks go to $10. So that loss is 90% means 10 bagger reverse stocks.

So ken fisher say’s, ” he is not the clear or topper of the class in college and school, and not even completed his higher education from a famous university like Harvard University or nothing his special accomplishment they have to write in this preface.” (Common Stocks & Uncommon Profits)

But they got the 15 points from in COMMON STOCKS AND UNCOMMON PROFITS book, and now they manage the billions of dollars in his funds. So if they do without doing anything is special so any buddy can do better in the stock market by applying these 15 points.

Ken say’s, ” In this book 15 points directly say the how to buy the company if you want to maximum profits, and if you compare that stocks with scuttlebutt method then you know company actually what is the business and how it grows and what problem comes in this process.”

Scuttlebutt method:-Common Stocks & Uncommon Profits

In this method, you have to talk companies employees, suppliers, competitors and customers,s and also the management of the company. Why this person? because these people know they know what is going in the company and clear the image of strength and weakness.

The customer tells you about the product and why they people buy again and again, and how they know about the new products means service and marketing department information.

The supplier tells, about the raw material side or inventory of the company.

Competitors say how the company is strong and its weakness. (Common Stocks & Uncommon Profits)

So this information you get by following the scuttlebutt method, so this information you found on the main street, not on the wall street or Dalal street, So this information is good and trustworthy.

If you want to collect information from wall street, then you face the dot com bubble candlesticks so you get the information from the main street is safe and trustworthy than the wall street candlesticks charts and financial reports of accounting. (Common Stocks & Uncommon Profits)

If you ask customers and suppliers, you get the truth of the company.

Scuttlebutt technique is very helpful to you to stay away from those companies that have the good on paper but actually not in the real situation, so this types of company stocks get in Ponzi scheme, then they lose the 90-95% stocks value.

So these 15 points help you to define which types of company you found, is outstanding company or Ponzi scheme company. (Common Stocks & Uncommon Profits)

Philip A. Fisher believes in holding stock forever, and ken believes in holding stocks for 5 to 10 years and growth stocks, value stocks, large-cap stocks, small-cap stocks, all types of stocks you can use this method because this method helps you to find out which is a quality company, whatever they company in any industry.

Ken says the Scuttlebutt chapter is about 3 pages but they told this is the best part of the book and very important parts

One of the best questions of Philip A. Fisher is not in this book, key say, ” What are you doing that your competitors aren’t doing yet. “

So that means if the company is not doing anything means they lead the other company in the same industry and other companies follow that company. (Common Stocks & Uncommon Profits)

Ken says, 15 points of company quality and scuttlebutt method is the diamond of this book. so and another topic is also very much important like 10 don’t for investors.

So ken suggests you have to read this book as much as time while you analyze a company.

The second preface is all about the Philip A. fisher family, you can read, buying this book, by click on the image, so let’s

Starts Preface by Philip A. Fisher :

In this preface, the author gives the shorts story of writing this book. Before writing this book, the author runs the investment counseling business at the age of 26, they run this for 10 years, and after that

in 1941 he got a job in the army air force. They work there for 3.5 years. so in this time period, they reviewed their investment actions. So from that review, some good points are born that are different from the financial community analysis rules. (Common Stocks & Uncommon Profits)

After the end war they use these 15 points and they got a good return for 12-13 years, and they want to keep the printed record, so they write this book.

The author says, beyond that 15 principles other two important things matter for investment success.