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Common Stocks and Uncommon Profits

What To Buy

People always tend to overestimate their abilities. They think they can make returns by just looking at a stock for 5-10 mins. Whereas an expert investor sits on his/her trading desk, from 9:00 A.M to 3:00 P.M, reads annual reports, analyses price movements, industry, and economy before investing. 

 

Generating the maximum returns while taking the least possible risk should be a goal for any investor.

 

The author talks about modifying an investment strategy of an individual as per his/her financial condition:

 

1. Growth stocks are for every kind of investor. Investing in “bargains” instead of growth stocks can definitely help one fetch good money but it may not be as high as investing in growth stocks. For example, If a stock is currently trading at a 20% discount, and you as an investor, buy it. The author says that the returns you will generate from buying this “bargain” stock will be significantly lower than if you had purchased a growth stock.

 

2. An investor must take a decision after determining the type of the growth stock that he is intending to buy. The author talks about 2 classes of growth companies. The ones that are massive and constantly grow like IBM and DuPont, and the ones that institutional investors are yet to discover. The potentiality that is present in a stock that hasn’t been discovered till now can prove to give amazing returns. 

 

3. If the investor does not have the time, or the skill to manage his own investment portfolio, he can ask an  investment advisor to guide him. If he chooses to do so , the investor must take care to appoint an expert with a proven track record based on good investment picks, and not an “expert” who has taken higher or lower risks in the stock market and has simply been lucky with timing. He must also ensure that the advisor has the same fundamental approach to picking stocks as himself.

 

4. The author suggests not to emphasize on the dividend yields. Growth companies characteristically reinvest all their capital into the business, hence payout of dividends is minimal. Also, growth investing is better than value investing as the perks of value investing are limited.

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Units 5/18