The fourth dimension of any stock investment involves the price-earnings ratio — that is, the current price divided by the earnings per share. In the attempt to appraise whether the price-earnings ratio is in line with a proper valuation for that specific stock, trouble begins to arise. Most investors, including many professionals, who should know better, become confused on this point because they don’t have a clear understanding of what makes the price of the particular stock go up or down by a significant amount.

This misunderstanding has resulted in the loss of billions of dollars by investors who find out later that they own stocks bought at prices that they never should have paid. Even more billions have been lost as investors have sold out, at the wrong time and for the wrong reasons, shares they had every reason to hold and which, if held, would have become extremely profitable as long-range investments.

Still another result is one that, if it happens repeatedly, will seriously impair the ability of deserving corporations to obtain adequate funding, with all that this could mean in a lower standard of living for everyone: Every time individual stocks take sickening plunges, another group of badly burned investors places the blame on the system rather than on their own mistakes or those of their advisors. They conclude that common stocks of any type are not suitable for their savings.

— Philip A. Fisher, Common Stocks & Uncommon Profits (1958)