Many Happy Returns 10 Things They Don't Tell You About Stocks
10 snips
Jan 17, 2024 Explore underappreciated aspects of stock markets: flaws of price-weighted indices, advantages of market cap weighting, active management vs passive investing, limitations of P.E. ratio, dilution in stocks and foreign exchange fees, optimizing fees and taxes, market cap vs GDP in global index funds, and reliability of market cap vs GDP as an indicator.
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Calculate Compounded Returns Correctly
- Use the geometric mean, not the arithmetic average, when calculating compounded returns.
- Be cautious of annualized return percentages without clarification.
Consider EV/EBITDA
- Consider enterprise value (EV) over EBITDA instead of just the P/E ratio when evaluating companies.
- EV/EBITDA accounts for debt, providing a more comprehensive valuation.
Factor in Growth with PEG Ratio
- Factor in a company's growth prospects using the PEG ratio, which considers growth alongside P/E.
- Lower PEG ratios may indicate growth at a reasonable price.