Of all the mysteries of the stock exchange there is none so impenetrable as why there should be a buyer for everyone who seeks to sell. October 24, 1929 showed that what is mysterious is not inevitable. Often there were no buyers, and only wide vertical declines could anyone be induced to bid.
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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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Investors should seek a company that can lower the cost of production and develop an expanding market without materially reducing the return on capital invested in the business.
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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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The two best ways of measuring the life cycle of an industry are unit volume of sales and net earnings available for stockholders.
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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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There are two sound reasons for investing in common stocks — growth of income and growth of principal.
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In planning an investment program, it is extremely important that the investor, before purchasing any securities, should ask himself, “What is my objective?”
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The three main objectives of investors are: (1) Capital conservation, or stability of market value of invested principal; (2) Liberal income at a fixed rate; and (3) Capital growth.
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Earnings of most corporations pass through a life cycle which, like the human cycle, has three important phases — growth, maturity, and decadence.
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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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People, it turns out, are not that averse to risk. For many reasons, they are not opposed to risk, but they are opposed to losing and the possibility of loss plays a very significant part in their decision.
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In any diversified portfolio, there will be both winners and losers, and the consideration that should determine which you should sell, if any, is certainly not the price at which you bought it originally.
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When deciding to sell, people have control over whether to give themselves pleasure or give themselves pain, and they tend to give themselves pleasure. In other words, they tend to sell winners and hang on to losers. It turns out to be a bad idea.
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It turns out that when people have to sell a stock from their portfolio, they are not rational between winners and losers. People tend to sell winners and hang on to their losers. The psychology of that is quite straightforward.
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One of the major differences between behavioral economics and standard economics is that, in standard economics, the individual agent is supposed to be driven or motivated by the utility of future wealth and discounted future wealth and present wealth. In behavioral economics, agents are supposed to be motivated by something else: gains and losses.
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Individual investors tend to churn their accounts, they tend to trade too much, and that they trade too much seems to be due to over-confidence. They believe they know something that they do not know and this is one essential characteristic of human beings, which makes them different from rational beings.
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When I shifted my focus from beating gambling games to analyzing the stock market, I naively thought that I was leaving a world where cheating at cards was then problematic and entering an arena where regulation and the rule of law gave investors a fair playing field. Instead, I learned that bigger stakes attracted bigger thieves.
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Hoaxes, frauds, manias, and other large-scale financial irrationalities have been with us from the beginnings of the markets in the seventeenth century, long before the Internet.
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There are people that own electronic stocks that don’t know the difference between an EEPROM and the senior prom and they’re trying to buy stocks.
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Almost everybody on this planet has the brain power to make money in the stock market. The question is whether you have the stomach for it and whether you’re willing to do a little bit of work? Those are the key elements.
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