The years 2014 and 2015 were quite a time in the stock market. I cranked some numbers recently to review my market performance over the past two years and came to a certain realization about it, upon which I based the title of this post.
Prior to 2014 my portfolio mainly consisted of 401k mutual funds and I didn’t pay much attention. It would have been a good idea to do so as the market has had a great run beginning circa 2009, and I was a little more than fashionably late to the market as an active investor.
Appreciation vs. Total Return
To be clear, there are multiple ways that market numbers are often bandied about. Sometimes it’s the value of the stocks (or more accurately the price of the stocks). Other times it’s the value of stocks plus dividends received, and which are then reinvested. This is known as total return.
Those figures are theoretically possible to emulate if one is running a large portfolio such that transaction costs are so small a proportion of each trade as to be negligible. Certainly the latter case of total return sets a higher bar. It also reflects a more complete picture. Continue reading “I Did No Better Than the Market” »
The main idea of this post is really simple.
Just keep in mind that if you receive a payment of $100 at the end of each year for the next ten years, those payments are not worth the same in today’s dollars. A $100 payment one year from now is worth maybe $95 in today’s money, while a $100 payment ten years from now may only be worth $60 right now. The total of those payments in today’s dollars is the present value.
Every publicly traded stock has more than one value. There is what other people (i.e. the market) say it’s worth at the moment, and there is what you think it’s worth if you were to buy and hold it indefinitely – its intrinsic value.
Continue reading “Estimating Intrinsic Value Like A Boss” »
Warren Buffett, CEO of Berkshire Hathaway and the world’s most successful investor, writes a much anticipated annual letter to shareholders. He has done so each year since 1965. His letter about the company’s 2013 performance (published March 2014), provides enlightening insight through two successful real estate investments he made.
One is a farm in Nebraska he purchased in 1986 for one of his sons to operate. The other is a retail property in New York City he purchased in 1993 as part of a partnership. He has been to the farm twice, and has never been to the NYC property.
The gist of his advice is to buy investments at a discount to their intrinsic value. And by intrinsic value he means value based on what it is expected to earn or produce over the coming years. Those with steady earnings, low potential downside and high potential upside are solid investments. Once those aspects have been evaluated, with emphasis on future productivity or earnings relative to today, then it comes down to purchasing them at attractive prices.
Continue reading “Warren Buffett’s Words of Wisdom” »