When to buy stocks of outstanding company

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

1. 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.
2. 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.

Read More: The intelligent investor book

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