Today's topic:
The intelligent investor gets interested in big growth stocks not when they are at their most popular – but when something goes wrong.
A study in 1996 shows that over time, if the same stock is kept and never sold it would go from $1.00 to $11.71, over the course of around 35 years, but if the stock holder is wise and pays close attention to the stock, knowing when its value drops, he could come out on top with $971.12 instead. Wouldn’t it be nice if we could just invest in a company when the price of its stocks is low and we could sell the stocks when their price is high?
The question becomes, is this something that can be predicted?
Let’s examine the case of three popular growth stocks of the 1990’s: General Electric, Home Depot, and Sun Microsystems; all grew to be more lucrative year after year. But as the earnings per share increased the more expensive their stock became; the price of stock seemed to grow faster than the company, and as a result the investors become discontent.
It is wise to consider a fundamental law of financial physics when looking at sound stock investments: “The bigger they get, the slower they grow.” Consider how easy it is to double $5.00 compared to how hard it would be to double $50, 000, 000. Many corporate leaders don’t realize this difficulty nor understand that price/earning ratios need to be considered when buying stock in a company.
When something goes wrong with a large company, legal disputes, hesitation of product quality, the stock drops and as a result can make it once again a growth stock with room to flourish. If the investor is wise, he knows this is a temporary setback and an investor could increase his wealth by buying stock options at the now lower rate.
I have copy pasted From: cramgenius.com
Submitted April 01, 2017 at 05:22AM by stupidarg http://ift.tt/2oljvHL