The Key to Long-term Growth

The Key to Long-term Growth

The key to long-term growth

For an aim that requires long-term growth, you will invest in stocks or shares of companies which have high earnings (high profits), and which retain more than half these profits in general reserves (funds which are 'ploughed back' into the business). In addition, a continuity of high earnings should be expected, i.e., the company must be engaged in a stable, Thriving type of industry or industries, not in one involved in an unstable or risky trade.

This retention of 'most' of the earnings (profits) in general reserves leads to increased assets, which in turn produce higher earnings. This retention or 'ploughing back' is the 'key to growth'. 'Most' here implies more than half the earnings. In other words, if the distributed profits (the dividend) are less than half the total earnings, the dividend will be more than twice covered by earnings.

Knowledge of the 'key to growth' is important in enabling you to select shares with a view to long-term aims.

Knowing the market and its sections

HAVING determined the size of your investment capital, clarified your aims and apportioned your capital accordingly, you are now ready to go on to the fourth stage of investment planning getting to know the market.

The stock market is different from other markets in that buyers are not allowed to deal directly on the 'floor' itself, but must deal though their agents, the stockbrokers. A stockbroker, therefore, is a Stock Exchange member who buys and sells stocks and shares for clients. For this service a broker is normally allowed to charge a commission of 11% on the total value of each transaction. To this, of course, are added the two other charges the contact stamp and the stamp duty.

The total charges of each transaction average 21 pence in the £, or 21% of the value of the transaction, when buying, and 14 pence in the £ or 14% when selling.

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