When I first started writing finance articles, I noticed that my author peers would often include income investing rules like “I only consider a security if it is yielding at least 3%.” That is a rule that has some rationality if you are near retirement or have some plans to collect the cash produced by your investments and do something with it in the near term. But still, I had some type of intuition that this rule was suboptimal, as I noticed that many of the firms with the highest earnings and dividend growth rates tended to have market prices that would only give you an initial yield of 1% or 2%.

The question I seek to answer through case studies is this: What happens if you actively choose to forego current income today, and instead opt to own something that doesn’t give you much income now, but has a … Read the rest of this article!

Mastercard is one of the best stocks you could have in your portfolio. As you know, it rules the credit card world along with Visa. The fees come with every single transaction, and the costs are generally fixed and the business model is asset light so 43.5% net profit margins are maintained. As a result, profits have sextupled over the past decade. Even if your expectations for business performance are unreasonably high, Mastercard still finds a way to exceed them.

But Mastercard is now a $200+ billion entity trading at 33x earnings. Since its IPO in 2006, this is by far the highest valuation, excluding the wildly fluctuating price immediately after the IPO. In four out of the past ten years, the stock maintained a P/E ratio below 20.

My expectation is that Mastercard shareholders will experience something analogous to what Microsoft investors endured from 2003 through 2012–a period of … Read the rest of this article!