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Common Stocks and Uncommon Profits

The Third Dimension

Nothing is more vital than the profitability of a company. The author says a company that is experiencing high profits is bound to attract new competitors. There are two ways by which a company can sustain its profits:

 

A. Monopoly - Monopolies are generally illegal, and Fisher doesn’t recommend investing in them.
B. Efficiency - Fisher says that the only way a company can sustain its profits is by operating more efficiently than others.

 

A company should have the following characteristics if it wants to sustain its profits:

  • Economies of scale.
  • Low Freight costs. 
  • Lower costs of production and the ability to attract new customers.
  • A prominent shelf place for a product can attract more sales.
  • As a company’s costs rise, it should not raise the price of that product more than its competitors.
  • Technological Development is another aspect which should be looked into when making an investment.

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Units 15/18