Book of Wise Investors

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When it comes to investing for greater returns for ten years down the road, dollar cost averaging every single month of the year regardless of the prices of the stock market is not a very wise choice, especially since prices of equities always swings like a pendulum. While we all cannot determine the top and the bottom, we can at least know where the general top and bottom areas lie.

Be it enter the stock market through direct stock ownerships,…

The standard and most talked about measure of risk in finance is standard deviation. While standard deviation has its reasons for existence in academic literature, a more applicable and intuitive measure of risk would be drawdown.

The drawdown of an investment is simply defined as the largest loss that occurs in the past. That is the difference between the highest and lowest price in all the historical price movements of the asset. Measurement of drawdown needs to consider the time period. In other words, the percentage lost from the highest point to the lowest point within a period.

In equation…

There are many three days stock trading seminars claiming that one can beat the market by consistently earning positive returns, or at least most of the time such that the overall returns over the long run is positive.

Then the high priests of finance, going by the names of financial planners, financial advisers, etc, in the wealth management industry that repeatedly drills you in the head that because it is difficult to beat the market when even professionals in this area are unable to do so consistently, as a result, you should concentrate on your job and profession, then turn…

There exists a belief that diversification not only reduces risk but also returns. In fact, the world richest investors become rich not by spreading all the eggs into as many baskets as possible but by focusing on “a few” outstanding companies. However, we ordinary investors don’t have the nerves and guts to place more than 50% of our net worth in new and untested companies.

But one does have to note that, at least based on historical data, most low price-to-book ratios does yield higher returns over the long run than investment grades blue chips, as far as…

Before continuing, it is good to recap the definition of dividend yield.

Dividend yield = dividend per share received / price of one share

Other than equity risk premium to measure whether stock market as a whole is normal/under-valued/over-valued, I wonder and have considered that dividend yield is another good indicator as well.

The reason why I came to this conclusion is as follows,

You see, as far as an individual company is concerned, we will never know more private and inside information than the managers running the company even if you own one share of the company and technically…

When it comes to direct stock ownerships, a high dividends paying stock will always be better than growth stocks that did not pay much if any dividends, though supposedly got higher rate of price appreciations than dividend paying stocks.

Here are some main reasons why investing for dividends is good,

1. Dividends allows investors to attain positive returns even in a bear market.

2. Dividends allows investors to further do well in investment returns when bull market return.

3. By virtue of the above two points, a dividend paying stock lowers the risk of investing. This is reflected in the…

The most important thing to a company is profit or what is commonly known as the bottom line – earnings per share, essentially related to net profits also.

A profit is not a profit as stated on company’s income statement. In fact, do not take the profit figures on published financial statements as the truth and nothing but the truth. There are more than 101 ways to misrepresent profit and the list do not ends as people is creative enough to add on to it.

Accounting consists of double entry bookkeeping, misrepresent profits corresponds to misrepresent of assets also.…

Most investors and even those who whole life place their savings under the mattress are aware of the fact that General Electric, being a conglomerate with very diversified earnings and yet profitable throughout all the economic cycles.

But there are always exceptions to the norm, just because General Electric functions well in terms of earnings and profits as a conglomerate spanning across a wide industry does not mean that most multi-industries companies are also the case.

Image Credits: Jud McCranie

Sometimes history does repeat itself, just because most conglomerates do not do well in the past…