![]() ![]() G : The annual rate of growth expected of its dividend payments The Constant Dividend Growth Model - the most fundamental valuation technique in the industry - defines the market price P of a stock as a function of:ĭ 1: The dividend each share is expected to yield in the year aheadĮ ( r ) : The annual rate of return required by investors to purchase it To address these issues, we must once again turn to Finance 101. While this distinction might yield a compelling investing philosophy, it does not provide any perspective on how to think about current events such as extreme inflation, how to actually derive the assumptions needed for a long-term portfolio strategy, or how to evaluate its execution. ![]() Furthermore, given that the latter approach does not demand the attention nor the urgency needed to beat other investment advisors to excess returns, it does not incur the associated research, trading, or tax costs either. While collective market wisdom would never expect the deliberate allocation of capital to specific stocks within a particular asset class to be any more profitable than an arbitrary one, it would always favor the prudent synthesis of the categories themselves over the construction of a highly correlated portfolio. In this segment, we will learn how to follow the various financial markets from the latter perspective through a deeper understanding of the variables that move them.Īs detailed in the aforementioned article, there are two characteristics of risk-driven investing that render it more productive than pursuing alpha - its universality and efficiency. ![]() Investment Advisor: The Economics of Paying for Advice, we developed a research-driven, analytical framework for contrasting the value proposition of staying one step ahead of Wall Street with that of efficiently following its lead. In our two-part publication released earlier this year titled, Financial Planner vs. ![]()
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