Common Stocks and Uncommon Profits – Point Five

Does the company have a worthwhile profit margin?

  • The greatest long-range investment profits are never obtained by investing in marginal companies
  • The only reason you should invest in a marginal company is if new products or services being introduced will take it out of the marginal category.
  • Some companies will deliberately spend a large part of profits in order to accelerate growth; this will put pressure on earnings in the short term. ¬†Investors need to make sure that the company is investing to build for the future.
  • Sound investments in R&D, sales promotion, or any activities that will strengthen the business are valid reasons to reduce earnings in the short term.
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