Instead of giving in to the temptation to buy a dividend stock yielding 10% or snap up shares of a company trading for “just” 8x earnings, be sure you are comfortable with company’s business quality. High returns on capital create value and are often indicative of an economic moat. I prefer to invest in companies that generate high (10-20%+) and stable returns on invested capital.
We probably have a reasonably strong grasp on how these particular markets work and who the best companies are in the space. As we faithfully pay our tithes, the Lord will indeed open the windows of heaven and pour us out a blessing, that there shall not be room enough to receive it. I want each of you to know, and especially my children and grandchildren, that I know, as my grandfather did, that if you always pay an honest tithing, the Lord will bless you.
Anyone proclaiming to possess such a system for the sake of drumming up business is either very naive or no better than a snake oil salesman in my book. Beware of self-proclaimed “gurus” selling you a hands-off, rules-based system to investing. If such a system actually existed, the owner certainly wouldn’t have a need to sell books or subscriptions. However, raw intelligence is arguably one of the least predictive factors of investment success. If the answer is no, we should probably do the opposite of whatever the market is doing (e. g. Coke falls by 4% on a disappointing earnings report caused by temporary factors – consider buying the stock). Excessive diversification also means that a portfolio is likely invested in a number of mediocre businesses, diluting the impact from its high quality holdings.
Stock prices will swing with investor emotions, but that doesn’t mean a company’s future stream of cash flow has changed. In other words, a company’s stock price was separated from its underlying business value. For some reason, investors love to fixate on ticker quotes running across the screen.
However, if we look back over the past years, we find there have been, and will continue to be, times of relative prosperity and times of financial uncertainty. If you always pay an honest tithing, the Lord will bless you.
One of the most important financial ratios that I use to gauge business quality is return on invested capital. With more years of experience under his belt, Warren Buffett changed his stance on “cigar butt” investing. He said that unless you are a liquidator, that kind of approach to buying businesses is foolish. If I cannot get a reasonable understanding of how a company makes money and the main drivers that impact its industry within 10 minutes, I move on to the next idea. These types of complex issues materially affect the earnings generated by many companies in the market but are arguably unforecastable. This doesn’t mean we can’t invest capital in these areas of the market, but we should approach with caution.
Once you identify the offer, you can dig in and do some research — then, you can either take the deal or not. You’ll have your risk evaluated based on a proprietary algorithm that includes employment and credit history, and you’ll be able to make the decision to invest based on a variety of well-thought-out data. Metals, energy and agriculture are other types of commodities. To invest, you can use an exchange like the London Metal Exchange or the Chicago Mercantile Exchange, as well as many others. Often, investing in commodities means investing in futures contracts. Effectively, that’s a pre-arranged agreement to buy a specific quantity at a specific price in the future.
These are leveraged contracts, providing both big upside and a potential for large downside, so exercise caution. That doesn’t mean that you don’t need a long-term strategy. But if you’re looking in order to create some momentum plus generate some capital rapidly, in the near-term, after that the following investment techniques might help you do just that will. If you have $1, 000 to invest, a person can make money a number of ways. Those are fantastic if you’re looking in order to invest your capital more than at least a two- to five-year period.