Hello friends, in today’s article we see chapter 9 of the common stocks and uncommon profits book. In chapter 9 Philip A. Fisher explains the five more don’t for investors, that helps people for how to invest in the stock market for beginners. If you know what to avoid then you know what is have to do, this is called a rule of inversion. so let’s see five more don’t for investors from chapter 9 of common stocks and uncommon profits book that helps you how to invest in the stocks market for beginners.
Five More Don’t for investors: how to invest in the stock market for beginners
1) Don’t Overstress diversification:-how to invest in the stock market for beginners
In the financial community more speak bad habit of concentration than the bad side of diversification.
Without knowing the company buying its stocks because you want to do diversification, this is more dangerous than the concentration in one stock.
Some company’s business lines, not some so this is also a diversification, author says, “I can not give specific rules for this, but I can give you some rough guidance.”
a) All investments might be confined solely to large companies, minimum of five stocks to be elected i.e. 20 % in one stock on an average, and attention on this company may be overtopped this company.
b) You can some or all money can be put in mid-cap companies if only mid-cap companies are involved, minimum often stocks i.e. 10% in each on an average those with greater inherent risk maybe 8% return of our funds. (how to invest in the stock market for beginners)
c) Small companies having possibilities of gain if successful but complete loss if unsuccessful, so you have to remember this. for these rules to follow
- Only put those funds into them that you can afford to lose.
- Don’t put more than 5% of funds into any one such company.
Category c) type company, it may be failing or go big or come to category b).
if the company is big, then your investment value also big from 5%.
So this company goes in category two then you can’t put 8% to 10% in this company.
In this c) category authors give advice on minimum stocks for diversification if you put more stocks in your portfolio then you can’t track all of them at the same time.
So practically investor knows more attractive company finding is not easy and track all companies also difficult.
2) Don’t be afraid of buying on a war scare:
Every time a major war breaks out or even on the fear of war, the market plunges sharply.
By the end of the war, stocks have always gone much higher.
In wartime, the government spends more than it earns, fiscal deficit increases, borrows money, increases the amount of money is the system causing inflation. (how to invest in the stock market for beginners)
In such a situation, having surplus cash becomes the least desirables.
Buy slowly at a scale down on a threat of war.
If war occurs, increase the tempo of buying.
Buy into companies with products and services they demand which will continue in wartime or those facilities can be converted into wartime operations.
If research effort spends on narrow-margin defense projects could be channeled to normal peace-time lines, shareholders’ profits would be greater.
3) Don’t be influenced by what doesn’t matter:
There are certain superficial financial stat superficial statistics that are frequently given underserved of attention by many investors. (how to invest in the stock market for beginners)
The author says there are some points people give the much attention to then required.
1 ) Prince range at which a stock has sold in past years:
Most investors see the price of stocks in 5 to 10 years, they see the highest and lowest price and from his,
they decide in mind this is the good price I have to buy, and the price of that stocks come and they buy on that price.
for this author give advice and says today’s stock price has no relation with what price of the stock before four years because before 5 years the view of investor for the company is different than now for companies perspective.
Investors think and buy on only if that stock price again goes to the highest level and we make money.
2) Heavyweight is given to EPS of the Past 5 years of the company:
What happened in the previous five is less important than what happens in the next five years.
Like new product come in the market and new plant develop by company, that help to grow.
for this understanding author give one simple example,
e.g. Texas instruments looked expensive in seeing past earnings, the company comes with a new product, and in six years company gains the 1000% return.
3) Whatever has happened for a number of years is bound to continue indefinitely:
for example, the EPS and stock price rising form five years and from now again five years is increasing.
But research timing and expense are uncertain that’s why outstanding companies’ profit also go minimum in for 1 to 3 years. (how to invest in the stock market for beginners)
The author says it is not to ignore all of these, you have to see this but don’t give maximum value than they deserve.
4) Don’t fail to consider time as well as price in buying true growth stocks:
A company qualifies on the 15 points, a strong indication that earnings are going to increase for the next several years.
So stocks are bought but at intrinsic value is $20 but current stocks price is $32.
We think stocks are going up to $75 in the next to a given year, so the conservating investor doesn’t buy that stocks did not come up to $20 or some close to $20.
The author suggests, instead of this, we have to see stocks low price point when coming
maybe the low price of company stocks averaged about one month before the pilot-plant stage.
So why not plan to buy this company’s share 5 months from now, which will be one month before the pilot plant goes on stream. (how to invest in the stock market for beginners)
Why you buying stock price can go down, but they can go down while buying on $20. This method will bring you stock at near the lowest price at which the stocks will sell from that time on.
5) Don’t follow the crowd:
The stock price of a company may rise or fall based on the influence like change in net income, management, tax lows, and new invention.
All these occur are real in the world.
Another type of price influence is one that is purely psychological. nothing has changed the outside world at all.
The majority of the financial Community looks upon the same circumstances from a different viewpoint than before.
These shifts in view are not confined to stocks as a whole but particular industries and particular companies within those industries as well.
These are fads in the stock market. these fads may be run for months or years, but in the long run, realities terminate them.
Remember one thing. the financial community is usually shown to recognization a fundamentally changed condition unless a big name or a colorful signal event is publically associated with that change.
this is all about chapter 9 of common stocks and uncommon profits book, which helps how to invest in the stock market for beginners.
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