Money and Finance
From Capital Returns:
- Calling Up Visa For Cash
Step one in the investment decision process lies in identifying companies that are high quality. Whether that's through their moats, their operational excellence, their cash generation, their growth prospects, their credit ratings, their dividend...
- The Most Important Metric For Dividend Investors
While researching a dividend paying stock should be a holistic process and buying decisions shouldn't be based on any single metric, if there's one metric that every dividend investor should know, it's free cash flow cover. After all, an income...
- Investing Is An Expectations Game
A thing long expected takes the form of the unexpected when at last it comes. - Mark TwainIn such a low-interest rate environment, why would the market allow companies to trade with 8%+ free cash flow yields -- even after considering a reasonable...
- Use The Market's Short-termism To Your Advantage
Here's a general criticism that I often hear about investing in companies with economic moats: Companies with economic moats always look expensive and they trade with premium multiples to the market. How can we invest with a suitable margin-of-safety...
- Three Wise Men On Quality Income Investing
Charlie Munger is a guy who knows how to get to the point. I came to investing for dividends via value investing. It took me a long time to appreciate what the important differences are. Charlie Munger managed to sum it up in on paragraph: "If you buy...
Money and Finance
Investing in a high-quality business...
From Capital Returns:
Investing in a high-quality company can seem dull and unrewarding in the near-term. The lower risk which comes from investing in quality companies is only properly observed over the long-term. The fact that investors are often focused more on the short-term is partly a function of psychology – the human brain is simply not attuned to multiyear planning, being far better at responding to short-term threats and stimuli. This is seen in several behavioural heuristics – notably hyperbolic discounting and recency bias. Short-termism can be intensified in an institutional setting. Performance-related pay for money managers at most investment firms is weighted to annual performance, which discourages long-term thinking.
Finally, there is another more technical reason why the virtues of a high return business are not always fully appreciated by investors. This is the tendency of investors to focus on the income statement. This fosters a fixation on price-earnings (P/E) valuation metrics and not price to free cash flow (P/FCF). Thus, all earnings growth is seen as equal, even though it is materially more value creative when return on capital and cash flow generation is higher. Faced with a choice between investing in two companies with the same earnings growth, we are prepared to pay materially more (in P/E terms) for the business with high returns on equity and superior cash flow generation.
- Calling Up Visa For Cash
Step one in the investment decision process lies in identifying companies that are high quality. Whether that's through their moats, their operational excellence, their cash generation, their growth prospects, their credit ratings, their dividend...
- The Most Important Metric For Dividend Investors
While researching a dividend paying stock should be a holistic process and buying decisions shouldn't be based on any single metric, if there's one metric that every dividend investor should know, it's free cash flow cover. After all, an income...
- Investing Is An Expectations Game
A thing long expected takes the form of the unexpected when at last it comes. - Mark TwainIn such a low-interest rate environment, why would the market allow companies to trade with 8%+ free cash flow yields -- even after considering a reasonable...
- Use The Market's Short-termism To Your Advantage
Here's a general criticism that I often hear about investing in companies with economic moats: Companies with economic moats always look expensive and they trade with premium multiples to the market. How can we invest with a suitable margin-of-safety...
- Three Wise Men On Quality Income Investing
Charlie Munger is a guy who knows how to get to the point. I came to investing for dividends via value investing. It took me a long time to appreciate what the important differences are. Charlie Munger managed to sum it up in on paragraph: "If you buy...