Fundamentals of Better Investing

Payback Theory

Let’s say you live in a town with two bakeries for sale at $1 million each. Both offer similar products with almost exactly the same type of customer and asset structure — one earns $100,000, the other $150,000.

Shareholder Equity

Shareholder equity is the difference between total assets and total liabilities. On a per share basis its known as book value. Companies that translate retained earnings to equity growth become more valuable. It is worth noting that legendary investor Warren Buffett has used book value to benchmark the value of his conglomerate Berkshire Hathaway for over 40 years.

Investment Risk

Even the best investors on the planet lose money on certain assets, regardless of how intelligent or risk averse. Don’t make the mistake of trying to be perfect. The best way to limit risk in the stock market is to invest in businesses that are going to withstand the test of time. These are typically profitable and growing and bought at the lowest price multiple possible. Then diversify into as many of these stocks as you can find, and plan on holding them for the long-term.

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Jonathan Poland

Jonathan Poland

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20+ years advising leaders. These are notes from the journey. Learn more @ mrplnd.com