Keep INVESTING Simple and Safe (KISS)
****Investment Philosophy, Strategy and various Valuation Methods****
The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
The Subtle Power of Rate of Return Earned on Reinvested Capital
In this table, we compare a bond paying 6.5% interest with the stocks of two companies paying dividends of 1.5% while reinvesting a like amount in growing the business. One company earns 20% on the capital it reinvests in the business and the other earns 10%. Reinvestment of earnings gives a business the capital to grow by funding initiatives such as developing new products, building a new plant, and expanding the sales force. A return earned on this investment should lead to an increase in earnings, dividends and eventually stock price. For purposes of the illustration below, we assume that the stock price increases in line with earnings growth and dividends are invested in a money market fund that pays 4%.
Clearly, earning a high rate of return on reinvested capital is the key to long-term compounded growth