Tuesday, 25 September 2018

Stocks are ownership interests in companies.

Being a stockholder is being a partial owner of a company.

Over the long term, a company's business performance and its stock price will converge.

The market rewards companies that earn high returns on capital over a long period.

Companies that earn low returns may get an occasional bounce in the short term, but their long-term performance will be just as miserable as their returns on capital.

The wealth a company creates - as measured by returns on capital - will find its way to shareholders over the long term in the form of dividends or stock appreciation.

My favourite financial ratios: ROA, ROE and ROIC.

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