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Month: September 2016

Should You Avoid High Priced Stocks?

How many times do I hear an investor, especially beginners, rationalize why they did not consider buying a high priced stock. Their rationale: “they are expensive”. They judge the attractiveness of a stock as an investment by its stock price. This is understandable because the first thing they ask and learn before even asking in what business the company operates in is “What is the price?” Because the objective is to make money, they assume that a low priced stock is more likely to appreciate more than a high priced stock. From what I can tell they probably reached that conclusion by assuming the following: They assume that a low priced stock suggests a smaller company and therefor e more likely to grow faster than a high priced stock which represents a large company. After all, most understand that it is easier for a Php10 million company to increase to a Php20 million company than it is for a Php100 million company to grow to a Php200 million company. They assume that a low priced stock is undervalued relative to a high priced stock. Over time, an undervalued investment is indeed more likely to appreciate faster than an overvalued investment. These assumptions are obviously flawed for the following reasons: The size of a company is not a function of the stock price, but of market capitalization (the total value...

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How To Make Your Child A Millionaire

It is every parent’s hope that their child have a great future. Among other things, perhaps be a millionaire. Assuming you are not rich enough to hand in a million dollars to your child in your will, how can you help your child be a millionaire? Certainly one way is to help your child get a good education. Help the child marry a rich partner maybe? Buy your child a lotto ticket every month and hope he/she wins the jack pot? You probably have other ideas yourself. How about this? You can save $2000 ($167 per month) every year can you not? If you can and you invest every one of them in the stock market, by the time your child is 45 years old, he or she would be a millionaire, $1.2 million in his stock account to be exact. Assuming you had your child when you were 30 years old, you would probably even be alive at 75 years old to see your child enjoy his/her million. In coming out with that estimate, I assumed a yearly return including dividends in the US stock market of 10%, the average return over almost 100 years.  Of course there will be some volatility in the US stock market returns from year to year ( such as this year the S&P 500 earned almost 30%), but I think in the...

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