Focus on total returns, not income investing

Focus on total returns, not income investing

The desperate search for yield has led to a number of people choosing to invest in income funds, or in mature companies providing a high dividend yield. On the surface, it might sound sensible, but it is erroneous. It may lead to investors underestimating the risk of investing in high yield instruments. Moreover, what is less obvious is the opportunity cost of focusing on yield only, as opposed to the total returns of a compounding company.

Figuring out a company’s intrinsic value with PE ratio

Figuring out a company’s intrinsic value with PE ratio

The price-earnings (P/E) multiple has been one of the most popular tool analysts use to value stocks. A company trading at 10x P/E implies that investors are willing to pay 10 times the net income that was generated. In other words for every $1 in net income generated, investors are willing to pay $10 or a 10% earnings yield. Despite its popularity, it remains one of the most misunderstood metric. A share valued at 30x P/E may not be expensive relative to another stock trading at 15x PE. Likewise, a share trading at lower P/E today, when compared to its 10-year median P/E, does not imply that it is a bargain.

What makes Mastercard a compounding machine?

What makes Mastercard a compounding machine?

Investors who held Mastercard for the past 10 years, have been rewarded handsomely with a 27.4% returns compounded annually. A $10,000 investment would have returned approximately $113,000 over this period. In this article, we will discuss why Mastercard’s wide moat has allowed it to reinvest its earnings at high returns.

Getting hurt chasing yields – Part 1

Getting hurt chasing yields – Part 1

Some of the most popular asset classes Singaporeans love are REITS, bonds, and stocks that pay a high dividend yield. And understandably so, because we are so sold on the idea of generating consistent, sustainable passive income to cover our expenses. It has almost become like a Singaporean dream to invest for income.

There is nothing wrong with that and it is great that people are taking charge of their financial welfare. But that eagerness has caused many to be blindsided to the risks involved. And many more have been taken advantage of by financial institutions.

My key takeaway from Berkshire’s AGM 2020

My key takeaway from Berkshire’s AGM 2020

Warren Buffett started the Annual General Meeting (AGM) with a seemingly bullish stance, diving into America’s history and how it always emerged stronger. Despite painting a rosy image, it is important to observe his actions. Key decisions such as the sale of airline stocks, the lack of new investments and share repurchases indicated a much …

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Facebook’s Q1’20 Earnings Update

Facebook’s Q1’20 Earnings Update

Increased engagement due to shelter-in-place measures but some of this increased engagement will be lost once measures are relaxed in the future. Engagement increased by ~10% YOY across all measurements, compared to ~7% in the previous period. Demonstrating that Facebook’s attractiveness as a platform for users to connect with their friends and family.

Has the market bottomed?

Has the market bottomed?

It is important to understand that the intrinsic value of a business is the present value of all the cash generated over its lifetime. And most would agree that COVID-19 would be a temporary event. It would be silly to sell your stocks or to hold on to your investable cash because this year’s earnings would show a drastic decline due to COVID-19 induced shutdown.

Investing in companies that will emerge stronger after Covid-19

Investing in companies that will emerge stronger after Covid-19

Since Covid-19 caused countries to go into shutdown, we have seen the conversation amongst investors shift abruptly from a company’s growth prospects to “How long can they survive without revenue coming in?“. Many businesses have closed amidst this crisis. At the height of the pessimism during March 2020, many investors were shocked to discover the …

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How Ferrari delivered outsized returns for investors with its economic moat

How Ferrari delivered outsized returns for investors with its economic moat

The moat surrounded Ferrari has proven to benefit investors immensely. Since its spin-off in 2016, it has delivered a CAGR of 37.3%, delivering a 400% return prior to Covid-19 within a short span of 4 years. Comparing this result with Ford, GM, or even the S&P 500, Ferrari has generated astounding returns for its investors.