If you invested like Charlie Munger in 2003, this would have happened...
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- เผยแพร่เมื่อ 21 ธ.ค. 2023
- Charlie Munger's 18% ROIC mental model changed Warren Buffett's thinking. (Not easy to do!) This rule is responsible much of Berkshire Hathaway's success. In this video, we look at the #1 thing I learned from Charlie Munger and backtest the 18% vs. 6% ROIC strategy from 2003-2023.
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Got a question about how you get the stocks that have an roic >18%. Where do i go to find those stocks. There really isnt a stock screener for roic that ive seen... any suggestions on how i can find these roic >18% stocks myself every month?
Hi, Nathan , it would have been interesting to break the high ROIC group in half by Price-to-Book and see if those high quality groups would have performed differently based on starting valuation.
Guess Bloomberg
Great analytical video, thank you for posting it!!
The problem we have is because Most people always taught that " you only need a good job to become rich. These billionaires are operating on a whole other playbook that many don't even know exists.
Money invested is far better than
money saved, when you invest it gives
you the opportunity to increase your
financial worth.
It is remarkable how much long term
advantage people like us have gotten by trying to be consistently not stupid,
instead of trying to be very intelligent.
The wisest thing that should be on
everyone mind currently should be to
invest in different streams of income
that doesn't depend on government
paycheck, especially with the current
economic crisis around the world. This is still a time to invest in Stocks, Forex and Digital currencies.
I also keep seeing lot's of people
testifying about how they make money investing in Stock, Forex and Crypto Trade(Bitcoin) and I wonder why I keep loosing. Can anyone help me out or at least advice me on what to do.
Even with the right technique and
assets some investors would still make more than others. As an investor, you should've known that by now that nothing beats experience and that's final. Personally I had to reach out to a stock expert for guidance which is how I was able to grow my account close to $35k, withdraw my profit right before the correction and now I'm buying again.
I feel investors should be focusing on under-the-radar stocks, and considering the current rollercoaster nature of the stock market, Because 35% of my $270k portfolio comprises of plummeting stocks which were once revered and i don't know where to go here out of devastation.
Safest approach i feel to tackle it is to diversify investments. By spreading investments across different asset classes, like bonds, real estate, and international stocks, they can reduce the impact of a market meltdown. its important to seek the guidance of an expert.
A lot of folks downplay the role of advlsors until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for licensed advisors and came across someone of utmost qualifications. She's helped grow my reserve notwithstanding inflation, from $275k to $850K.
This is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? I'm in dire need of proper portfolio allocation.
I just looked her up on the internet and found her webpage with her credentials. I wrote her a outlining my financial objectives and planned a call with her
I just looked her up on the internet and found her webpage with her credentials. I wrote her a outlining my financial objectives and planned a call with her
Munger and Buffett have both achieved an incredible feat with Berkshire. They've turned thousands to billions, and have made a lot of people wealthy in the process. I really saw the potential of the stock market by reading Berkshire's annual letters. I recently sold my $674k apartment in the Bel Air area and I'm hoping to throw it into the stock market. I just don't want to lose everything.
Most people either do not understand the power of compound interest, or are just impatient. For the average Joe, however, I think it is just best to invest in the S&P 500, and just wait, which is reliable, albeit extremely long-- lots of years. Or just use a professional analyst and speed up wealth creation. Most people underestimate the power of the latter.
I agree with you. I started out with investing on my own, but I lost a lot of money. I was able to pull out about $200k after the 2020 crash. I invested the money using an analyst, and in seven months, I raked in almost $673,000
I'm actually interested in this idea of investing through an analyst. Sounds like the most sensible thing to do in the market right now. Could you give me a pointer to who you work with, please?
“Vivian Carol Gioia’’ You can easily look her up, she has years of financiaI market experience.
I find this informative, curiously explored Vivian on the web, spotted her consulting page, and was able to schedule a call session with her, she shows quite a great deal of expertise from her resume.. very much appreciated
I really saw the potential of the stock market by reading Berkshire's annual letters. I recently sold my $674k apartment in the Bel Air area and I'm hoping to throw it into the stock market. I just don't want to lose everything.
Most people either do not understand the power of compound interest, or are just impatient. For the average Joe, however, I think it is just best to invest in the S&P 500, and just wait, which is reliable, albeit extremely long- lots of years. Or just use a professional analyst and speed up wealth creation. Most people underestimate the power of the latter.
I agree with you. I started out with investing on my own, but I lost a lot of money. I was able to pull out about $200k after the 2020 crash. I invested the money using an analyst, and in seven months, I raked in almost $673,000
I'm actually interested in this idea of investing through an analyst. Sounds like the most sensible thing to do in the market right now. Could you give me a pointer to who you work with, please?
'Melissa Rose Francks' is the licensed advisor I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I just looked her up on the web and I would say she really has an impressive background in investing. I will write her an email shortly.
Stock analysis is more than reading quarterly reports. Learnt this from reading Peter Lynch's book. Nonetheless,I believe there are people who do this for a living, and I just delegate the task to these professionals. That's how to stay afloat in the market.
There are a lot of ways to achieve your goals but such strategies can only be carried out by market experts not a random TH-camr.
I stopped listening to these TH-camrs, because at the end of the day, I end up with a bunch of confusing stocks, In reality, all I needed was professional help to take advantage and make over $239,000 in profits.
I stopped listening to these TH-camrs, because at the end of the day, I end up with a bunch of confusing stocks, In reality, all I needed was professional help to take advantage and make over $239,000 in profits.
@@ericmendels Personally, I would say engage professional guidance. Not sure where you get an experienced one, but if your knowledge of the market is limited, it seems like a good bet.
@@hullbruce I haven't written such a comment before, but can you recommend a trusted fellow i can reach out to? I think that is the right thing to do
Taking early notes from Warren as to the importance of sound asset diversification and risk management It can’t be overstated. I’ve been trying to grow my portfolio of $300K for sometime now, I would greatly appreciate any other suggestions.
Well the bigger the risk, the bigger the reward and such impeccable decisions are better guided by professionals
Yes true, I have been in touch with a financial advisor. With an initial starting reserve of $80k, my advisor chooses the entry and exit commands for my portfolio, which has grown to approximately $550k.
I've been considering hiring an advisor for a long. Could you please direct me to your advisor?
*Natalie Marie Gentry* is the licensed advisor I use. Just search the name. You’d find necessary details to work with to set up an appointment.
Thanks for sharing, I just looked her up on the web and I would say she really has an impressive background in investing. I will write her an e-mail shortly.
I'd love to invest in stocks after listening to a guy on a podcast talk about the importance of investing and how he made over $300k in few months of investing into stocks from $175k initial capital, somehow this video has helped shed light on some things but I'm confused about the current market volatility I'm new to this and I'm open to ideas.
It's difficult to beat the market as an ordinary investor, you don't have access to information that professionals have. So it's just better if you invest with a professional who knows how things work better.
That's right, I started investing sometime in 2019 and by early 2019 I pulled a profit of over $800k with no prior investing knowledge or skill I was basically just following the guidelines set by my financial advisor, despite the current market volatility I return at least $75k every month so you don't necessarily need to be a perfect investor or do the hard works, just have an advisor to guide you.
Interesting! been looking to switch to an advisor for a while now but the fear of losing funds held me back, please any help pointing me to who your advisor is and how to reach them?
Well, there are a few out there who know what they are doing. I tried a few in the past years, but I’ve been with Melissa Terri Swayne for the last five years or so, and her returns have been pretty much amazing.
Thanks for this amazing tips, I found her webpage and booked a call session with her, she seems proficient.
Every week I buy more of whatever is the lowest percentage of my portfolio and try to keep everything around 10%. Please what could be my safest buys with $400k to outperform the market in 2024?
I would avoid the index funds, mutual funds, or specific stocks for the time being. The 5% fixed incomes are the safest bet for now. Save your cash for when the market actually shows sign of recovery.
This is why I've entrusted a fiduciary with my investmnt decisions. Many underestimate advisors until emotions lead to losses. My advisor crafted a tailored strategy aligning with my long-term goals, guiding entry and exit points for the equities I focus on. This has grown my portfolio to over $850k. My personal best so far
How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?.
‘Lisa Angelique Abel’ is the licensed advisor I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
She appears to be well-educated and well-read. I ran an online search on her name and came across her website; thank you for sharing
My million dollar motto is invest early, invest often, stay invested.
how do i do this? where do i start? i'm so confused
Okay so i advise you start with stocks, buy a good cross section of an economy and you should do well over the long term. The market will be high in 10 to 20 years, and significantly higher in 30. It's almost impossible for a company with no debt to go bankrupt. Canada is about 3% of the global marketplace, U.S. is about 50%, remainder on the globe is 47%. Pay yourself first. It's time in the market, not timing the market. i stay untop of the market with my FA Emily Lois Parker. Bulls and bears make money, but pigs get slaughtered. - some wise words
Thank you, this was definitely worth the read, as an Investors may avoid making decisions out of fear of regret. This can lead to inertia, where individuals hold onto cash rather than invest, fearing they will make a wrong decision.
Geez, strong performance in 2023. Congrats! Kick down those Wall Street doors
Thanks for sharing, I just looked her up on the web because this is equally important to me, and I would say she really has an impressive background in investing. I will write her an e-mail shortly.
Stocks extended their year-to-date rally following the CPI report, with the S&P 500 last up 0.8% in afternoon trading. but I don't know if stocks will quickly rebound, continue to pull back or move sideways for a few weeks, or if conditions will rapidly deteriorate.I am under pressure to grow my reserve of $250k.
It's really hard to beat the market as a mere investor. It's just better if you invest with the help of a professional understands the market dynamics better.
You have a very valid point, I started investing on my own and for a long time, the market was really ripping me off. I decided to hire a CFA, even though I was skeptical at first, and I beat the market by more than 9%. I thought it was a fluke until it happened two years in a row, and so I’ve been sticking to investing via an analyst.
Please can you leave the info of your lnvestment advsor here? I’m in dire need for one
“Leila Simoes Pinto’’ You can easily look her up, she has years of financiaI market experience.
Thank you for this Pointer. It was easy to find your handler, She seems very proficient and flexible. I booked a call session with her.
I'm under pressure to grow my reserve that currently holds about $500k. I'm down by 20% already following the crash and I fear I could lose more.
It's all hype! best to ignore the trend at the moment whether bullish or bearish, and stick to a proper trading plan preferably with expertise assistance.
It is very easy to buy in on trending stocks but the problem is knowing when to sell or hold, which is why a coach is important. I've been in touch with one for about a year now and although I was initially skeptical about it, I will say l've made more progress within a year generating 6figure profit.
That's truly remarkable. I hope you don't mind pointing me towards their direction.
She's 'Olivia Maria Lucas' The best I've seen so far. Simply do your diligence.
Out of curiosity I looked up Olivia Maria Lucas on the web and I have to say her Credentials are really Amazing.
Love your backtests, Nathan. Early season's greetings to you and family!🌲
Same to you!
Thanks for supporting the camera community. Very generous of you. Subscribed
Thanks! He's a great channel, so glad to support him!
Losing Munger is a huge loss to Global Finance. Rest in Peace. He was a master of analyzing Opportunity cost
💙🙌💙
That is really good analysis.
What I love about your channel is; when you are backtesting, you do not backtest from the results hindsight.
You consider the analysis as of your backtest start date and give the results. That is much more convenient because we will invest with the data we have now, not with data of 10-20 years later.
Today, it is easy to say if you have invested X amount on Amazon or Apple on 2000 you would've made Y. But what people don't consider is they would not have guessed that performance at 2000. When we check what happened to the high performers of 1980-2000 (probably IBM, Microsoft, Coca Cola, etc.), some of those companies brought below SP-500 as you've shown.
Thank you for that clear clarification,
Absolutely amazing vid! Thx a lot
Great video. Did you consider testing selling stocks every year that fell below 18% ROIC and purchasing new ones that were > 18% ROIC?
Very informative video. Thanks Nathan.
Glad you found it helpful, Bob!
Peter Lynch also pointed out, many times, the correlation between positive stock price performance and increasing earnings. He also mentioned in his dry way that it is difficult for a company with no debt to go bankrupt.
100% love Peter Lynch! He’s not that dry though.. that or I like dry people 😅
Could you do the same backtest but this time for stocks with positive net debt vs negative net debt?
Awesome video! It was nice confirmation that I'm headed in the right direction. Now I just have to do the hardest part... nothing.
Haha that is the hardest part, isn’t it?!
Great info! Enjoying the backtesting of these strategies and appreciate the work you put into it. As a dividend investor I would love to see a backrest on the Chowder Rule vs a back test of the Chowder Rule and the Munger’s ROIC strategy. Have a great holidays
What is that strategy?
The back testing here is flawed. It’s over a not very significant time horizon and also one where interest rates were at historical lows. Not to mention during just the front half of COVID with a huge stimulus injection. The odds that we see a similar economic climate in the next 20 years as we saw in the last 20 is pretty unlikely.
Thanks for you effort of this great analysis!
You have a new subscriber!
Welcome aboard!
From one charterholder to another...great content! Wondering if the low ROIC screen is somehow pulling in serial acquirers/rollups that my show up with low returns on capital b/c of the high levels of intangible assets....
Interesting video that was very informative. Thank you for sharing!!
Glad you enjoyed it!
Thank you for the video! What site or screener do you use to find the high ROIC stocks?
Thank you for all the studies and backtests you are providing to us for free. I really appreciate that.
I am still struggling to find the buy button at particular prices for even such high quality businesses, even knowing that they are likely to perform better over very long periods of time.
You are very welcome for the content. I appreciate your support! It definitely can be hard to do that, but just take a look at Costco. It has regularly traded at 40 times earnings, yet has compounded money at nearly 18% over the very long term. if you look back at one study, they found that you could pay over 200 times for a company like L’Oreal. So it is possible possible to out perform with paying a high price, you just have to be extra sure that it can maintain those returns on over the long-term. Period
Very nice analysis.
Excellent work.
Great video, stellar work.
Thank you!
THANKYOU I appreciate your excellent content
You are very welcome
awesome video. Please give us an update on the coffee can portfolios. And please if you can finish the dividend tournament.
My greatest question is, how does one get the data to do the ROIC calculation?
Thanks for this present 🎁
You are welcome! Merry Christmas to you!
As an lnvesting enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $545K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?
It's best to seek an advisor right now, unless you're canny yourself. As a business owner in both the service industry and eBay reseller of all product categories, I can tell you we’re in a deep recession and everyone is running out of money.
I agree, that's the more reason I prefer my day to day invst decisions being guided by a invst-advisor, seeing that their entire skillset is built around going long and short at the same time both employing risk for its asymmetrical upside and laying off risk as a hedge against the inevitable downward turns, coupled with the exclusive information/analysis they have, it's near impossible to not out-perform, been using a invst-coach for over 2years+ and I've netted over $900K.
How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?
She goes by 'Linda Aretha Reeves ''. I choose to delegate my excesses to her because of her great expertise. I suggest you look her up. To be honest, almost didn't buy the idea of letting someone handle growing my finance, but so glad I did!!
Thank you for sharing, I must say, Linda appears to be quite knowledgeable. After coming across her web page, I went through her resume and it was quite impressive.
Interesting analysis. My biggest take away from the analysis low or high roic…you made a strong case for indexing.
Good video thanks
Hey Winklepleck, good video. Which software/site did you use for your model computations? Thanks!
Good question.
BTW, as a suggestion ( I am new subscriber) would be nice to have a video with just the list of the best positions ytd instead of a rank by market cap. Perhaps a couple of ranking, like the ones with average biggest ROC over last 10y, etc.
Fantastic video, gave me something new to go and research! Like someone else in the comments said, I'd be curous about the performance of a portfolio where this strategy was used to reweight the portfolio every 3-5 years
Super interesting video.
Brilliant research. Thank you. It will definitely help me with my investing
Glad it was helpful!
Nice job, very interested portfolio
Great video! And wonderful idea from Munger. Interesting to see the charts as the 18% ROIC stocks far out performed during the 2010s when capital was so cheap.
What does that mean for today? What was the average multiple on the two buckets in 2003 would be my first question and has the market caught on to this and these 18% ROIC stocks are priced to reflect this now.
Quick check shows appl at a 31 p/e now vs ~17 in 2010, an 80% increase. Still seems to fit within the initial example of return over a 40 yr period. Can big tech sustain such high rate on invested capital over the coming decades?
Im trying to get my CFA level 1 and 2 out of the way. Is there a study resource you recommend?
Hey, what software are you using to sketch your on screen notes?
As an investing enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $545K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?
Yes, a good number of folks are raking in huge 6 figure gains in this downtrend, but such strategies are mostly successfully executed by folks with in depth market knowledge
A lot of folks downplay the role of advisors until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for licensed advisors and came across someone of utmost qualifications. She's helped grow my reserve notwithstanding inflation, from $275k to $850k.
How can I participate in this? I sincerely aspire to establish a secure financlal future and am eager to participate. Who is the driving force behind your success?
Carol Pasol Lewis is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I appreciate this share. I set up a call with her and I am keen on getting to talk to her particularly. Lady looks really great though even with the exams and other stuff.
Great content as always Nathan! Can you please make a video on what happens to ETF if the ETF issuer goes bankrupt? For example if Vanguard goes bankrupt then they need to liquidate all VOO and return the money to ETF holders. Now if vanguard tries liquidate few Billions worth of ETF in short period of time, then all underlying stocks will just tank in price . In that case ETF holders will receive pennies for dollars.
Am I missing something?
Thank you : ))
Welcome!
Great video. How can a small investor do their own back-testing of this approach? Thank you so much.
Just out of curiosity you said you used ROIC but on the graph against the s&p ranking system says ROCE? I know this is nuance but they are different metrics and just wondering which one you used.
The 18% growth rate assumes the company in question can reinvest 100% of the capital they generate each year into the company, meaning their revenue growth rate should equal their ROIC over time. This is where the problem comes in, because while ROIC tends to be sticky, meaning a company that has a high ROIC in one year is likely to maintain that high ROIC in future years, the same is absolutely NOT true for revenue growth rate. It tends to strongly mean revert over time. That's where valuation becomes ALOT more important, because when they can't reinvest 100% of their capital, they start returning it to shareholders, and the rate of return to shareholders will be highly influenced by the earnings multiple.
100% this!
Isn't this further complicated because of the Biden Inflation Act? Companies that do stock buybacks now have to pay a 1% excise on the stock price when purchased. Since most of these companies have a higher PE ratio there is some overvaluation which will revert to the mean, but in most cases it will be overvalued from speculative investors and fund which tend to hold these companies. Biden also wants to raise the stock buyback excise tax to 5% which would mean companies would probably seek other strategies for tax mitigation.
This is my #1 metric when performing analysis & diligence
Same here! That's what I mainly focus on when selecting stocks to analyze
Great Video! Do you mind sharing what tool you use for performing the backtest?
Portfolio123 link in description :)
What website did you use to test your strategy?
What service do you use to calculate the returns of the portfolio
Which Software did you use for the backtest?
Very interesting. So is there any advantage to selling and replacing stocks that may not maintain this high ROIC? Might it be done on an annual basis, such as the rebalancing that is done with the Dogs of the Dow? That would be a possible subject for a study and backtesting.
Would be interesting to test. I think that for your personal investment strategy you would have to ask yourself why this ROIC decreased and if it will go back up to normal levels or not before selling the position
Amazing video
Thanks!
Hi everyone. Someone know where to find the ROIC historical data for US stocks to perform the backtesting?
Thank you for your great piece of work! However, each time the investor stands in front of the key question on how to select the right investment for your limited resources. So, should one only project KPIs (i.e ROIC) based on old financial reports,? I believe that's a bit too easy.
Thanks for the video and happy new year... Do you think that such strategy is something that can be reasonably applied by retail investor considering the huge number of purchases/fees it accounts for? What about the filtering criteria period for compliance? 1 quarter? 1 year before current date? If the theory works... After companies get their gains or losses in a timeframe, should we repeat the filtering criteria to enhance at some point in time the compound interest of new comers? I can expect that big performers can drop in performance after some years of spectacular returns... As their business start to be mature/big and without easy growing... The time criteria could be also polished with a size component... Focusing more in small/mid caps.
I would suggest also to do, if possible more back tests for different periods. Last 20 years of market are probably like the 20ths in previous centuries with too much 'easy money' flooding stock markets.
I think that if you focus on companies which have had a ROIC above 18% for more than 5 years there should not be many buys or sells. Focus on predictability more than anything else
its true we are in unpredictable times
have to keep faith in fundamentals in your own valuation metrics and hopefully time will rationalize everything
When we're we ever in Predictable times?
Didn't Charlie Munger and Warren Buffett invent the strategy of buying/investing when the market is low and also buying/investing when the market is high? As Warren Buffet said, he has seen this happen many times in his life. Not an investor. My wife and i never earned more than a middle class salary. We plan to get retired at 58 with a stock portfolio worth $4M. We have never sold so much as one share of stock...
It really isn’t about how much you save, it’s about how you manage your money. Whether you work to earn income or invest, it still boils down to income vs expenses, so yeah you may look into financial advisors for a strategy that suits your timing....
i've been doing this same thing myself. Can't get into trouble with the IRS when I have no income and all my money is in stocks. I don't like doing the work though. Lol. So I just invest through an advisor who does the stock picking. My money grows, and I'm tax-free...
I’ve been down a ton, I’m only holding on so I can recoup, I really need help, who is this investment-adviser that guides you?
When ‘Carol Vivian Constable’ is trading, there's no nonsense and no excuses. She wins the trade and you win. Take the loss, I promise she'll take one with you.
She appears to be well-educated and well-read. I ran an online search on her name and came across her website; thank you for sharing.
This video was very interesting
Glad you liked it!
Nathan, when you perform back testing, how can you avoid survival bias? Asking differently, when you sort sp500 index, did you use the sp500 composition in 2003, instead of 2023?
Yes, take a look at the list of stocks in 2003, which I show. It includes names that don’t currently exist 🙌
That is great. Thank you very much.
This is why I don’t mind paying a premium for an excellent business if it’s compounding at a rate higher than the market and you can expect it to continue doing so over the long term. Unless you’re waiting for some black swan event to temporarily dunk the market you should expect to pay a premium for a good company, it’s ROIC demands it and if the price keeps going up just let them split it while you hold. Too many people nowadays bargain hunting for stocks that trade cheap because they are cheap….always puzzled me why Berkshire has held such large positions in Bank of America, Coca Cola & Kraft Heinz for so long. At least Munger loved Costco which has compounded at a 16% CAGR over the last 20 years.
Exactly!!! Value today is not the same as value in 20 years!
So where do we find these stocks
Really interesting thank you. DO only 10 of the SPX have 18%+ ROIC, or did you only show the top ten ranked by ROIC ?
I only show top 10 ranked by market cap
Nathan, Please do a video comparing the MSCI USA index & the S&P 500
Shall we exclude bank stocks from this method? Banks usually have a higher ROIC but are analyzed differently. Shall we consider banks in a similar way with other stocks? 11:16
Yes, bank stocks should be excluded. Great point 👍
Have you done a backtest where you refresh the list at the end of each year for ROIC>18% rather than stick to the 2003 list?
The trick is to find a unicorn that has a depressed price, good capital performance, good earnings and a return on asset performance. The pandemic and 2008 presented those opportunities. You cannot time the market but you can buy when the price is good.
I was actually expecting a video where Charlie has elaborated it himself.
you get it, sir
Can u hear that sound ? The sound of investors exiting Berkshire Hathaway stock & buying Bitcoin !
LOL morons
Gold info
Thanks! 🙏
Your list of 10 companies at the end constitute around 27% of the S&P 500 index, it sounds like the broad market consensus is correlated with Mr Munger's thinking.
It would be interesting to see the ROIC figures for the top 50 companies in the S&P. We know 40 of them are not above 18, but how much below are they?
That would be interesting… there are 109 stocks that have 18% or more ROIC, so roughly 20% of the index on an equal weighted basis. Market cap is clearly higher, as you’ve pointed out already.
Hello…….i have the same question….the determination of how to arrive on the “return on invested capital?” Interestingly my Schwab account has insufficient data analysis.
You can check on other pages such as alpha spread or full ratio
The key to roic is knowing the future IRR whatever the ROIC is as a whole on the company actually means very little.
Great video. Is there an ETF that does this? Would be great
Not this exact thing. There are wines that have ROE as part of the equation, but I’m not aware of any that use ROC
Well my formula for 2024 is simple. Hold cash and wait till the market re-levels so I can make new buys again. Or are there any ways I can avoid a crunch and maximize my savings of $550k? I know election years are positive for the stock market about 90% of the time.
Everyone needs a different stream of income , unfortunately having a job doesn't mean security due to the high rate of tax , one needs to move ahead their expectation, I would recommend refraining from investing in stocks for now. Instead, it would be prudent to consider retaining a portion of your assets in gold. Alternatively, seeking advice from a financial advisor could provide valuable guidance in this matter
I've remained in touch with a financial analyst since the start of my business. Amid today's dynamic market, the key difficulty is pinpointing the right time to buy or sell when dealing with trending stocks - a seemingly simple task but challenging in reality. My portfolio has grown by more than $600k within just a year, and I've entrusted my advisor with the task of determining entry and exit points.
in times like these, it's crucial to be cautious and not rush into the market , Who is this your FA , my portfolio needs urgent attention , been a lot of loss.
Christine Ann Podgorny is the licensed coach I use. Just research the name. You'd find necessary details to work with a correspondence to set up an appointment.
I appreciate it. After searching her name online and reviewing her credentials, I'm quite impressed. I've contacted her as I could use all the help I can get. A call has been scheduled.
i have had really good luck with a 50% mix of Large Cap Growth and small cap blend. I"ve done 16% return over 10 years, beating the S&P 500. Last year I made 30%, My funds were Russel 1000 growth, and Russel 2000 index funds. I challenge anyone to get as good a return over 10 years.
Based on your test BAC was a loser but it's the second largest holding in Berkshire Hathaway's portfolio. Any idea why they would hold on to it if it doesn't meet the 18% ROIC standard?
Banks should really be measured on ROE basis because their capital structure is essentially backwards. Assets (loans) are most peoples’ liabilities. And their liabilities (deposits) are most peoples’ assets.
Yea finding a company
I have seen ROIC with WACC subtracted for a more refined measure. What do you think of that approach?
More complicated, but would be better if you can accurately estimate WACC.
I suspect you would have had even a better return if you had allocated position size by risk parity, as most institutional investors do. Re-balancing periodically also boosts returns.
Most institutions don’t allocate by risk parity, I’d say most don’t
I know you're looking for coffee can investing strategies. But this is a really interesting idea for an investment manager or ETF. I would imagine if you weighted them by return and rebalanced annually you'd end up with even better returns. .
Or hold the top 20, and only change out if a newcomer is in the top 10, to create less turnover.
Munger was definitely on to something as you can see through Berkshires results over the last 60ish years. I would be curious to see the results of your test pairing this with active management to cull out the companies that drop below the the ROIC minimum. My guess is it would approach 18%+- thus matching Berkshires long-term returns.
That would be an interesting study to try. Maybe I’ll give it a shot. The argument against what you were suggesting is that often times a company that goes from a high return on invest down to a low one, they are going to experience a drop in evaluation, as the market starts to perceive that the fundamentals of business are deteriorating.
@@NathanWinklepleckCFAThat's a good point. The market, in the short term, reacts negatively to those and you could potentially be selling at large losses simply because of a drop in ROIC. Which could in turn could also be short-term and you just sold off a great business with temporary headwinds at a cheap price. Of course, there's a lot more that goes into the consideration than ROIC. But the simple example is very cool! Thank you for putting in the work!
This whole concept highlights the problem of corporations that buyback stock, rather than reinvest earnings in their business. Buying back stock does boost stock price, but only in the short term. It's good for corporate management that receives bonuses based on the present stock price, but bad for the long term investor.
What I don’t understand is, on one hand we are told the stock market will crash and yet on the other we are told ways of investing in the stock market. Oxymoron or paradox? I'm considering investing over 150k, but I'm uncertain about risk mitigation strategies.
For the average person, the strategies are fairly demanding. In actuality, most professionals who have the necessary abilities and knowledge to complete such occupations do so successfully.
If you do decide to make new purchases, have an exit strategy ready. Consider taking partial profits quickly to lock in some gains. I've been in regular contact with a financial analyst since covid. Investing in popular stocks is now quite straightforward; the issue is determining when to buy and sell. My advisor makes investment and exit decisions for my account, which has risen to more than $500K in less than a year.
please who is the consultant that assist you with your investment and if you don't mind, how do I get in touch with them?
Her name is. 'Marisa breton Dollard’. Just research the name. You’d find necessary details to work with a correspondence t0 set up an appointment.
I just curiously searched her up, and I have sent her an email. I hope she gets back to me soon. Thank you
what you'll find is that you should have just invested in the index lol.
I guess the question is it better to buy safer businesses that will still be around in 30 years or attempt to find 18% compounders that will continue to do so for long term. I think Charlie Munger also talked about making sure you stay in the game and the advantage of just surviving.
I’d think the 18% compounders will be the same survival rate. I’m talking 18% returns on the business capital not the stocks that make 18%
With markets tumbling, inflation soaring, the Fed imposing large interest-rate hike, while treasury yields are rising rapidly-which means more red ink for portfolios this quarter. How can I profit from the current volatile market, I'm still at a crossroads deciding if to liquidate my $125,000 bond/stock portfolio.
Hi Nathan: You will have difficulty to maintain the list as some will produce less than 18% return next year. The list is dynamic...
I know 😜
Back testing bias is overlooking companies that went bust.
So what company(s) realistically are able to earn 18% per year... and compound that for 40 years?
THAT is the real question, my friend. Costco, Constellation Software, and Berkshire Hathaway are the only ones that I know of. It would be interesting to see which companies have done it for 40 years and what their returns were.
Sounds like Costco.
You know it! 😜
Since 2000, Berkshire hasn’t beat the s and p 500