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Philip Fisher is among the most influential investors of all time and the author of one of the must read investment books, Common Stocks and Uncommon Profits and other writings.

There are certain books that have redefined the way we see the worlds of finance and investing—books that deserve a place on every investor’s shelf.

Buy this book on Amazon.com, Amazon UK, Amazon India.

Fisher explains his favorite list of top-ten don’ts in the book and If you are an investor, then you should follow these don’ts as follows.

1. Don’t buy into promotional companies

No matter how appealing promotional companies may seem at first glance, the author believe their financing should always be left to specialized groups.

Such groups have management talent available to bolster up weak spots as unfolding operations uncover them.

Those who are not in a position to supply such talent and to convince new managements of the need of taking advantage of such help will find investing in promotional companies largely a disillusioning experience.

There are enough spectacular opportunities among established companies that ordinary individual investors should make it a rule never to buy into a promotional enterprise, no matter how attractive it may appear to be.

2. Don’t ignore a good stock just because it is traded “over the counter.”

Over-the-counter securities are concerned, the rules for the investor are not too different from those for listed securi-ties. First, be very sure that you have picked the right security.

Then be sure you have selected an able and conscientious broker.

If an investor is on sound ground in both these respects, he need have no fear of pur-chasing stock just because it is traded “over-the-counter” rather than on an exchange.

3. Don’t buy a stock just because you like the “tone” of its annual report

What is important here is thoroughly understanding the nature of the company, with particular reference to what it may be expected to do some years from now.

If the earning spurt that lies ahead is a one-time matter, and the nature of the company is not such that compara-ble new sources of earning growth will be developed when the present one is fully exploited, that is quite a different situation.

Then the high price-earnings ratio does discount future earnings. This is because, when the present spurt is over, the stock will settle back to the same selling price in relation to its earnings as run-of-the-mill shares.

However, if the company is deliberately and consistently developing new sources of earning power, and if the industry is one promising to afford equal growth spurts in the future, the price-earnings ratio five or ten years in the future is rather sure to be as much above that of the average stock as it is today.

Stocks of this type will frequently be found to be dis-counting the future much less than many investors believe.

This is why some of the stocks that at first glance appear highest priced may, upon analysis, be the biggest bargains.

4. Don’t assume that the high price at which a stock may be selling in relation to earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price

What is important here is thoroughly understanding the nature of the company, with particular reference to what it may be expected to do some years from now.

If the earning spurt that lies ahead is a one-time matter, and the nature of the company is not such that compara-ble new sources of earning growth will be developed when the present one is fully exploited, that is quite a different situation.

Then the high price-earnings ratio does discount future earnings. This is because, when the present spurt is over, the stock will settle back to the same selling price in relation to its earnings as run-of-the-mill shares.

However, if the company is deliberately and consistently developing new sources of earning power, and if the industry is one promising to afford equal growth spurts in the future, the price-earnings ratio five or ten years in the future is rather sure to be as much above that of the average stock as it is today.

Stocks of this type will frequently be found to be dis-counting the future much less than many investors believe.

This is why some of the stocks that at first glance appear highest priced may, upon analysis, be the biggest bargains.

5. Don’t quibble over eighths and quarters

For the small investor wanting to buy only a few hundred shares of a stock, the rule is very simple.

If the stock seems the right one and the price seems reasonably attractive at current levels, buy “at the market.”

The extra eighth, or quarter, or half point that may be paid is insignifi-cant compared to the profit that will be missed if the stock is not obtained.

Should the stock not have this sort of long-range potential, Author believe the investor should not have decided to buy it in the first place.

6. Don’t overstress diversification

How much diversification is really necessary and how much is dangerous?

It is somewhat like infantrymen stacking rifles.

A rifleman cannot get as firm a stack by balancing two rifles as he can by using five or six properly placed.

However, he can get just as secure a stack with five as he could with fifty. In this matter of diversification, however, there is one big difference between stacking rifles and common stocks.

With rifles, the number needed for a firm stack does not usually depend on the kind of rifle used.

With stocks, the nature of the stock itself has a tremendous amount to do with the amount of diversification actually needed.

7. Don’t be afraid of buying on a war scare

Common stocks are usually of greatest interest to people with imagina-tion. Our imagination is staggered by the utter horror of modern war.

The result is that every time the international stresses of our world produce either a war scare or an actual war, common stocks reflect it.

This is a psychological phenomenon which makes little sense financially.

8. Don’t forget your Gilbert and Sullivan

Gilbert and Sullivan are hardly considered authorities on the stock market. Nevertheless, we might keep in mind their “flowers that bloom in the spring, trala” which, they tell us, have “nothing to do with the case.”

There are certain superficial financial statistics which are fre-quently given an undeserved degree of attention by many investors.

Possibly it is an exaggeration to say that they completely parallel Gilbert and Sullivan’s flowers that bloom in the spring.

Instead of saying they have nothing to do with the case, we might say they have very little to do with it.

Foremost among such statistics are the price ranges at which a stock has sold in former years.

For some reason, the first thing many investors want to see when they are considering buying a particular stock is a table giving the highest and lowest price at which that stock has sold in each of the past five or ten years.

They go through a sort of mental mumbo-jumbo, and come up with a nice round figure which is the price they are willing to pay for the particular stock.

9. Don’t fail to consider time as well as price in buying a true growth stock

Let us consider an investment situation that occurs frequently. A company qualifies magnificently as to the standards set up under our fifteen points.

Furthermore, very important gains in earning power are going to appear about a year from now, due to factors about which the financial community is, as yet, completely unaware.

Even more important, there are strong indications that these new sources of earnings are going to grow importantly for at least several years after that. Under normal circumstances this stock would obviously be a buy. However, there is a factor that gives us pause.

Success of other ventures in prior years has given this stock so much glamour in the financial world that if it were not for these new and generally unknown influences, the stock might be considered to be reasonably priced around 20 and out of all reason at its present price of 32.

Assuming that five years from now these new influences could easily cause it to be fully worth 75, should we, right now, pay 32—or 60 per cent more than we believe the stock is worth?

There is always the chance that these new developments might not turn out to be as good as we think.

There is also the possibility that this stock might sink back to what we consider its real value of 20.

10. Don’t follow the crowd

There is the last and most important investment concept which is frequently difficult to understand without considerable financial experience.

This is because its explanation does not lend itself easily to precise wording.

It does not lend itself at all to reduction to mathematical formulae.

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