Book of Wise Investors

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…

For fundamental investors, as opposed to technical investors, reading and interpreting financial statements are some of the standard things to do. But sometimes, when we look at the figures for accounting profits, it looks impressive. However, what is stated on a so called audited financial statement may not be as real as it seems. If you plan to manage own portfolio through direct stock ownerships, then understanding accounting rules is something that must be done.

There are a total of three ways in which a listed company can list its investment in another listed company, and this will affect the…

When it comes to direct ownerships of stocks, dividend yield is often a cited parameter in measuring the present value of shares of a particular company. We will look at all the factors using dividend when deciding whether a stock is a good buy, hold and sell.

Dividends are simply cash payments made by a corporation to its shareholders. The corporation may or may not be listed on a stock exchange; it may be of a different business entity that is not of a corporation.

Image Credits: mujitra

Successful businesses earn money of course. (In the…

In fundamental investing, one needs to look at the financial statements of the listed companies intending to invest or has already invested. Cases of Enron and Worldcom, and now all the famous investment banks shows that audited financial statements do not necessarily mean that every single figure is really correct.

If one waits until “creative accounting” is detected by relevant authorities, then it will be like Enron case, too late already if one is still holding on to the stocks.

“Accounting is the language of business.”

I know that most of us came across above verse from Rich…