strategy

Can One Redeem All?

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As value investors, we have always treasured the opportunity to buy shares at favorable prices for companies we deem to be durable. For many companies, 10 times the annual earnings per share looks like a bargain to us!  

In the recent market turmoil, these kinds of opportunities appeared again. The arithmetic of these situations is interesting: an investment might compound to three times its beginning value over 10 years or so if the company is making annual profits of one-tenth the share price and earnings keep up. 

No guarantees, of course. We could be wrong in our judgment, or some problem could befall the company and upset the theory.  

But suppose shares are purchased in three such companies. If only one pans out as hoped over the 10 years or so, it may be worth triple the beginning value. If the other two are worth nothing, then the combined value of the three may still hover around the original value, as it was 10 years before.  

One could redeem all. 

Better yet, a company that delivers steady earnings over 10 years might be valued at 15 or 20 times earnings in the future instead of just 10 times, based on the steady earnings record. That valuation change might produce profits in addition to return of the original investment. 

Well-known grocery chains, health companies, and food processors may be a fit for this strategy. We cannot know the future, but we believe all these companies will survive—not just one out of three—with the possibility of real gains.  

But even if only one proves durable, that one may redeem all. 

If you are ready to talk strategy as it relates to your goals, please email us or call.


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