Fundamental
Investing is the idea that what a business does actually matters. A good
business takes Capital and sustainably generates cash. That cash is then either
paid out to owners or is reinvested and becomes Capital. Maximising sustainable
growth. The Payout Ratio is the proportion of earnings a company pays as
Dividends. The Reinvestment Ratio is the same thing, looked at in the opposite
way. It is the money that is reinvested back into the business. Ideally, there
is a good balance. The money paid out is sufficient to cover the cash needs of
owners. The growth opportunities are there to sustainably put more Capital to
work. An Equity Portfolio can give an owner generating more cash than their
needs and their investment opportunities, the option to put the cash to work in
other quality businesses. If all this works well, then what matters is what is
going on in the businesses. Not what is going on with the share price. Share
prices are noisy. That is where people are guessing. A share price is a quote
of what someone will pay for a slice of ownership. People who play the market focus
on the price. People who invest focus on the business.
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