Discount rates, a fundamental concept in finance and investing, is summarized by the old adage: a dollar today is worth more than a dollar tomorrow. Yet, discount rates are consequential, affecting income, wealth, and the value of all assets. Discount Rate on Consumption While prices of goods and services can go up or down in a short time period, they tend to rise (at an … [Read more...] about Lessons From Examining Discount Rates
The Valuation Primer
Every investor should know how to value assets. Valuations forces investors to translate their assumptions about an asset into concrete fair value estimates and compare those estimates against the market value. This process is also a sanity check, which evaluates if an investor's assumptions are possible, plausible, and probable. Since returns have an inverse relationship with … [Read more...] about The Valuation Primer
Diversification is Dead, Long Live Diversification
In 1996, Warren Buffet famously said “Diversification is a protection against ignorance, it makes little sense if you know what you are doing." Regretfully, this quote is often used by retail investors to dismiss the benefits of diversification without truly understanding how it works. To understand diversification, investors must understand three concepts from a financial … [Read more...] about Diversification is Dead, Long Live Diversification
Dividend Investing Is Deeply Flawed
Dividend investing is a popular, but flawed investing approach promoted by popular blogs like wallethacks.com, thedividendguy.com, dividendearner.com, and countless others. This approach, which favors investing in dividend stocks, implicitly excludes non dividend paying stocks from an investment portfolio. While there are valid reasons to invest in dividend stocks, excluding … [Read more...] about Dividend Investing Is Deeply Flawed