- The instability of the tangible assets as most of the time, they are not worth the exact market value when the company is distress or deflation in economy
- The difficulty of estimating the intangibles assets and most of the time, they do not worth as much as what the management sees. However there are some exceptions where a company worth depends on its intangibles such as Coca Cola.
- It paid no dividends
- Earnings where irregular and sometimes its profits may cover barely its expenses
- A stated part of its stated value represented no actual investment in business
Author classify investment stock as:
- Earnings where stabke abd in excess of dividends paid
- Having a satisfactory record of dividend handouts to investors
- each dollar of stock was backed by a dollar or more of actual investment in business
New era theory
- In this era, investors look for investments by looking at dividends and believe that it has a slight bearing upon the value
- No relationship existed between assets and earning power, asset value was entirely devoid of importance
- Pas earnings are use to estimate what changes were likely to take place in future and not using it to estimate the stability of a company
The law of diminishing returns
Increased competitiveness from competitors
The ups and downs of the economy cycle where the company stock may look impressive due to the fact that it is at the top cycle of the economy cycle and as the law of nature states, what goes up will go down eventually. Therefore beware of buying at this time and the fall of the economy cycle will bring down the profits of the company
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