What’s next?
The thing that has prompted this post, is the chat I had with a whole bundle of Bet Angel users on Monday night. I offered out an open invitation to talk about anything. Unfortunately at 11pm we ran out time, unable to answer all the 300 or so comments and questions. I will arrange another session in the future. One question was, “Were does it end, what’s next?” There is a natural endpoint for me, its linked to my investing.
When you invest, not trade, you are looking for yield. It’s the same as putting money into a savings account, you want to earn X% interest. The wonderful thing about investing in company shares is that you can earn your ‘interest’ and see your capital grow at the same time. When I invest, I am looking for that company to re-invest profit to grow the company and return any excess cash to me, the partial owner, as a dividend each year. You and I can sell each other bits of companies till the cow comes home, trading, but at the end of the day a company is worth only what it throws off in cash over time. So that is my focus.
As an example, I bought some shares in AG Barr in late 2004, nearly five years ago. I bought them at around £6 each. In the last five years they have moved up to near £13. That’s a nice return, but I have earned more than this because of the dividend payments. Dividend payments add £1.55 to my return. 25% of my purchase price has already been returned to me in the form of dividends. Next year the dividend yield, based on my purchase price, will probably reach somewhere near 7%. With an investment yield like that per year, there seems little reason to sell them. This is why I like longer term investing so much, as opposed to trading short term on the stock market. My only decision this year will be whether I want to sell AG Barr or not. If I hold I get paid for doing so, its a net positive position, even by doing nothing. Investing can also be scaled to billions.
In contrast, while your return on capital is likely to be high if you trade on any market, your ability to scale it is limited as it always involves some form of leverage. On exchanges, that scaling is smaller given the introduction of the premium charge, data charges etc. More importantly you will not earn anything in terms of a yield. Investing though compounds up at a brisk rate and compared to something that is limited in scale, it will over take it in double quick time. If there is excess capital to hand, investing and compounding it will soon produce an income without having to sit in front on a screen every day for hours.
Of course you need to get that excess capital in the first place, so don’t let it hold you up in anyway. It’s just another another goal to aim for. Much better to be a lender of capital than a borrower of it!
Category: Using Bet Angel
