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Cedar Rapids Gazette (Newspaper) - July 15, 1974, Cedar Rapids, Iowa How To Make Money on Wall StreetAdvice To Stockholders: Beware Dividend Lust When Investing By Louis Rukeyser Newspaper Enterprise Assn Despite its decidcly unaristocratic name, ‘'common stock” is the kingpin of investing. The holder of common stock gets aid last. All other claims against the corporation, such as bonds and preferred stock, are settled ahead of his. But his compensation is that he is a residual owner of the company, which means two things primarily: For each share of common stock he owns, he has one full vote in the election of a board of directors that runs the corporation; and thor*' is no limit to the profits he can make if the company does well. Common stock, like all securities, is issued originally by the corporation whose name it bears. This is the prime way that corporations RUKEysea obtain the capital they need to get started and keep going. Unless the stock you buy is brand-new — what is called a “new issue” — the money you spend for it will not, however, go to the compnay whose name is on the stock. Nor will it go, as some people quaintly believe, to the stock exchange. It goes, of course, to the last person who owned the stock you buy. How should you begin? Well, first by realizing that the key to wealth in the stock market for most people is to be found in the purchase of “growth” common stocks — the stocks of companies whose earnings are likely to increase rapidly over the years and whose profits have a motive power greater than the average push behind the U. S. economy as a whole. This means that, where your greatest fortune-building is concerned, you will be wary of the large industrial giants (Second of a series) whose prospects are chained to the rise and fall of the general business cycle. They can be solid investments, and there will be times when you will want to own them, but you should start by telling your broker that your interest is in proven growth stocks. In investing, it is advisable to walk before you run. This means, for example, that you should always pay cash for those first stocks you buy. Don’t buy them “on margin” and don t borrow from your local banker or your Cousin Sam Buy only what you can afford. “Listed” Stacks The wise investor will also buy only “listed” stocks, and specifically those that are traded every day on either the New York or American stock exchanges. To be “listed” by these exchanges is to meet certain minimum requirements — and thus the mere fact that the stock is trading there gives you some assurance that it w ill not disappear overnight. This is not an absolute. Many fine companies never bother to get listed by an exchange — and being traded on the New York stock exchange didn’t keep Penn Central from going bankrupt. But your odds are better in sticking to listed stocks at first, particularly since the information on them is likely to be more complete. One rule I would regard as central for inexperienced investors is: Don’t buy a stock just because it’s cheap. Resist the pull. While many a $3 stock has eventually soared to greatness, many, many more have vanished entirely. Playing with low-priced stocks is a dangerous game that requires extra-strong information about the company and its prospects. Ifs not a safe game for beginners. You ought to restrict yourself at first to no more than two or three stocks This is true even if your initial investment runs into several thousand dollars. You will be much better off trying to learn as much as you can about two or three companies than spraying your money around as if you were a miniature mutual fund. “ln-and-Out Trader” Another discipline that the typical stock-market beginner ought to impose on himself is the realization that he is not equipped for success as an “in-and-out trader." This means Deciphering Listings On Financial Pages Newspaper Enterprise Assn. Don't be frightened by the newspaper financial page. That’s where you can find information about your stock each day, so now is as good a time as any to learn how to read a stin k listing. Let’s dream up a mythical name for the company in which you’re investing. “Getridge Quik International” comes to mind. Now let s look it up in the alphabetical listings headed “New York (or American) Stock Exchange Transactions”. (Running your finger down past such companies as (JenMot (General Motors), you find your very own stock — and this is what you see: 43'.' 26’. GetriQuik 20 22 211 44 4?V} 43’.+ ; The explanation for each figure is at the top of the column. From it we learn that $43 50 was the highest price per share at which your stock had previously sold this year, and that $26.25 was the lowest. The .20 tells us that the stock pays an annual dividend of 20 a share — nice and low The next figure, 22, gives us the “P/E” or price-earnings ratio for the stock — compiled by dividing the closing price for the day (43.75 in this case) by the earnings per share reported by the company for the last 12 months. In this case the earnings per share would have been about $2.OO. To the 211 figure that follows, we have to add two zeros — thus finding that 21,100 shares of Getridge Quik International were traded that day The next three figures give us the highest price at which the stock traded that d^y ($44). the low for the day ($42 50) and the closing, or last price for the day ($43.75). The ty at the end tells us that this closing price was .50 higher than the last sale on the previous day. Your stock has edged forward to a new high for the year. Tomorrow the first number in the line will be 44 instead of 43Vi, and hopefully, your glory days have just begun. Village s Mayor Busted for Pot MILLSTONE, N J (UPI) -The mayor of this small town and her husband have been charged with possession of a marijuana plant and more than 25 grams of marijuana, the county prosecutor says. Prosecutor Stephen Champ! said the arrests at the home of Mayor Gail Anglada capped an investigation that began when detectives went to the mayor’s home after an earlier unrelated incident. “At that time, my men were seeking some information from the mayor at her home.” Champi said. “Before my men could identify themselves as law enforcement officers, the conversation turned to the use of drugs. My men felt both suspects were drug users ” Mrs. Anglada, elected on the Democratic ticket in 1973, is running for re-election in this November’s general election. Pooch Boots Firehouse Heist HERRIN, III. (CPII - A pooch booted a theft attempt in dog days heat Fireman Dave Bandera spotted the dog trotting out of the fire station with another fireman’s boot and gave pursuit. After a brief chase,, the dog dropped the boot in the interest of a speedier escape that you’re not going to be constantly buying and selling stock in an effort to outguess the professionals for a few points here and there. That is a losing game for most people even after years of experience. Here’s a tip you may find distasteful: Don’t spend your dividends. Reinvest them at the first suitable opportunity. Since your total return on your investment includes both the rise in the price of your stocks and the dividends they pay out. you are plainly building more for the future if you put those dividends to work in the form of additional shares of stock Too often the new investor gets hung up on dividends. If one stock is paying a 7 percent dividend and another is paying 2 percent, he’s likely to head straight for that big 7 percent cheese. Usually, he will be wrong to do so. (Wall Street expresses that figure as “yield ” To find out what a stock is “yielding,” divide the annual dividend by the current price of a single share.) Almost invariably, the higher the yield the lower the growth. The companies whose stock prices rise the fastest seldom pay much of a dividend in terms of the current price. Investors should be willing to pay more for earnings that are likely to become much greater in future years. Low or No So now you know one characteristic of the kind of growth stock for which you will be looking: Its management will reason that it can use dividend money more profitably than you can, and it will implement that reasoning with a policy of low (or no) dividends. Another helpful precept for the novice investor to remember is that there is no requirement that you put your entire investment bundle into the stock market on your very first day This is a temptation that seems to be particularly potent when the market is roaring ahead, and euphoric brokers and friends are eager to exploit your anxiety to jump aboard before it’s too late. In fact, there is seldom a genuine “last chance” to make a good purchase. Just as you are going to be patient once you have made an investment, so you are going to be thoughtful before you plunge. 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