Most companies that sport lofty valuations fail to generate results that justify them.
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When growth becomes scarcer and the discount rate becomes lower, growth becomes more valuable.
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The fact that a stock is considered to be growth stock is no assurance against a decline in income or market value during the downtrend of a business cycle, as growth stocks often depreciate as much as other groups.
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Sometimes a company which has a relatively low profit margin is able greatly to increase its sales volume without increasing its capital investment and thereby increase its earnings per share.
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If a stock goes up 30 or 40 times in ten years, it has to have been grossly underpriced to begin with.
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Maybe you’re right 5 or 6 times out of 10. But if your winners go up 4- or 10- or 20-fold, it makes up for the ones where you lost 50%, 75%, or 100%.
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Growth stock investing may be more a philosophy of buying what is popular. Value investing is more a philosophy of buying what is out of favor.
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When picking a list of growth stocks for long-term investment, broad diversification of the risk is the first and most important principle to follow. No one can look ahead five or ten years and say what is the most promising industry or the best stock to own.
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Growth stocks are as varied in their characteristics as a surgeon’s instruments or a carpenter’s tools and, similarly, successful results are dependent on knowledge and experience in their proper use.
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While the trend in profit margins is one of the most important factors to consider, it is not always the company which reports the higher profit margin that proves to be the better growth stock.
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No mathematical formula or yardstick alone can be relied on for identifying growth stocks or for detecting when their earnings reach maturity.
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“Growth stocks” can be defined as shares in business enterprises which have demonstrated favorable underlying long-term growth in earnings and which, after careful research study, give indications of continued secular growth in the future.
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Once a business is well established, the greatest opportunity for gain is afforded during the period of growth in earning power. The risk factor increases when maturity is reached and decadence begins.
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The enchantment which some growth companies convey to the stock market lends a premium to their common stocks which is not always justified by the statistical background.
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The ability to create its own market is the strategic, the dominating, and the single most distinguishing characteristic of a true growth company.
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Neither the corporate executive nor the investment manager can allow himself to be lulled into the belief that any company, regardless of its record of achievement, must necessarily provide satisfactory rates of growth.
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All stocks are “two-decision” stocks; and no such thing as a “one-decision” stock exists.
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If you are in the right companies, the potential rise can be so enormous that everything else is secondary.
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Even a great company can be priced too high if there’s a lot of glamour attached to it.
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I think it is more conservative in the long run to be in a company that is really progressing and really has an edge.
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The inescapable fact is that the value of an asset, whatever its character, cannot over the long term grow faster than its earnings do.
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People who chase growth, who chase highfliers, inevitably lose because they paid a premium price. They lose to the people who have more patience and more discipline.
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The history of business the world over is full of examples of businesses which have grown from modest beginnings to stupendous earning power.
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Fast-growing companies can’t be expected to keep up the pace forever. Eventually, they reach middle age and lose some of their oomph, just like the rest of us.
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You can’t go to sleep holding cyclical stocks for a decade and expect to be richly rewarded. The rich rewards are in growth stocks and special situations.
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The successful purchase of growth stocks requires two rather obvious conditions: First, that their prospect of growth be realized; and, second, that the market has not already pretty well discounted these growth prospects.
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To my mind, the so-called growth-stock investor — or the average security analyst for that matter — has no idea of how much to pay for a growth stock, how many stocks to buy to obtain the desired return, or how their prices will behave.
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Many mistakes have been made in buying growth stocks on the theory that the future will duplicate the past.
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