Behavioural Finance
Ignorance Of The Masses : Think Education Is Expensive? Think Again!
Ignorance In Investing - It is funny how people never ever learn from their mistakes. This is something I see over and over and over again. While fools say that they learn from experience, the wise say that they'd rather learn from the experience of others. To that, I say Amen! I would rather learn vicariously through the eyes of another. As a value investor, my vulnerable persona and esteem takes a royal drubbing whenever I lose money. And I can tell you, losing money is not something that I can smile at. And I believe that this is the same for many investors out there. But unlike many investors out there, I believe that I am well aware of my limitations as an investor. Coupled with some real world experience, this gives me an edge over others. This is not meant to be a self inflating article but sincerely, I hope to impart some these lessons that I have learnt with as much candour as I can possibly muster.
Let us do a mathematical experiment here. A company earns $10 per share and out of that, pays a dividend of $8 per share. If one were to apply a 20 times multiple in the dividend stream going forward , the value of the dividends in perpetuity is $160. So we could make the argument here that the company is worth at least $160 if the dividend stream is fairly consistent. The $2 per share in retained earnings could lead to some real growth in the future. So if an investor decides to pay $100 per share for that company, that would be considered a good buy from an investor's stand point.
