I advocate investing in the business, not the stock. Therefore, I am buying the earnings power of the business. In the long-run earnings determine market price. I consider this a law of investing. It’s really based on mathematics, or more precisely compounding.
When looking for growth, I seek a rate of 15% or better. This is an above average rate than many leading companies have historically achieved. Therefore, if I buy a dollar’s worth of earnings today in a business growing by 15% or better, I can expect to have two dollars worth of earnings in approximately five years. Today’s video looks at why that provides a margin of safety and opportunity. Of course the trick is to get the growth.
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Disclosure: Author Manages Portfolios Long MHS
In the future, if you have substantially more earnings for the market to capitalize than you started with, good things happen. Even in a bad market you have valuable assets underpinning your investments. Therefore, chances for suffering losses are greatly.