I created a Youtube channel titled “The Conservative Income Investor” to post short videos that will supplement the written content for the site.
For the inaugural edition, I discuss how the duty of the investor is to find the best risk-adjusted investment opportunity that is presently available to you, even if the stock you are analyzing previously traded at a more attractive entry point.
I use Nike as an example. Between 2005 and 2007, the valuation of Nike stock climbed from 15-16x earnings to 23x earnings. A lot of people probably stayed away from the stock on valuation concerns. And yet, even if you purchased a block of Nike stock on the eve of the recession at the absolute highest price in 2007, you still went on to compound at a nearly 16% annual rate.
The primary question should be: What is the most attractive investment I can make today out of all options that are available to me? If the best thing you can find is something that offers 12% prospective returns, then you shouldn’t shy away from it just because it offered 14% annual returns in yesteryear.
Originally posted 2016-06-10 20:15:49.