A company that spends a lot of R&D dollars on intangibles of lasting value will have assets not shown on the balance sheet and ROIC will be artificially inflated. Such a company that is also acquisitive will show depressed ROIC because NOPAT will be reduces because the investments in intangibles of lasting value will be expensed and depress earnings and hence NOPAT.
Almost all investors will know about compounding. But, it’s hard to get through your head what it can really do.
The behavioral tail can wag the statistical dog
Economic performance focuses on effective use of the capital invested in the company
The decision to sell a stock is, in many ways, trickier than the decision to buy. My own observation is that investors in common stocks should never be conditioned to sell outperformers. There is a time to fold ‘em. But its not simply because their price has outperformed the market or some benchmark.
When I started investing just over 50 years ago, I read that over the long-haul stocks outperform bonds. Over the years, with all the ups and downs of the stock market, I’ve never had any reason to doubt that. But, the majority of publicly traded U.S. stocks underperform Treasury bills. That doesn’t mean you have to identify the next Magnificent Seven. The vast majority of wealth creation comes from a reasonably sized cohort of successful companies
There will be significant fluctuations in the price of individual stocks in one’s portfolio, but this is background noise. Against this noise the investor must monitor their portfolio to detect signs that the superb companies in their portfolio have not or are not deteriorating in character and quality. Where quality has deteriorated, the investor should not hesitate to sell.
Behavioral inefficiencies are likely the most enduring because human nature has not changed much over time and is unlikely to change much in the future.
The world does not operate in accordance with conventional economic or finance theory posited on the notion that people are both rational and selfish.
We think the very term ‘value investing’ is redundant.
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