Profit From The Magic Of Compounding Protected By A Wide Margin Of Safety


  • Buy and hold the stocks of quality companies with the history and continued likelihood of compounding total returns from capital gains and dividends.
  • In this uncertain market, it is crucial to evaluate the downside risk and other measurements of the stock's margin of safety.
  • Ultimately, search for a wide margin of safety for compounding returns through all market cycles.

Investing with a margin of safety is defined as the difference between the estimated intrinsic value of the stock and its current market price.

Powered by Ivy-League degrees and sophisticated software, Wall Street disseminates complex, assumptive financial models of seemingly precision earnings estimates and price targets, each market day.

But many of those projections ultimately play-out as no more intuitive than a crystal ball; otherwise, the investment elite would be as wealthy from portfolio performance as they are from fees and bonuses.

Disciplined, self-directed investors take a straightforward and more realistic approach to measuring intrinsic value by instead focusing on controllable quantitative areas that gauge enduring value from the compounding, dividend-paying common stocks of quality companies.

Predictably, the herd will ask, "At what specific price will the stock be trading next week, next year, and in the year 2028?" My answer:

I don't know. 

However, I do know that investing in common stocks to take advantage of the magic of compounding protected by a wide margin of safety is the best-case scenario for portfolio success over a lifetime, not just a single bull market.

The Magic of Compounding

Compounding is the financial process where we reinvest an asset’s earnings such as capital gains, interest payments, or dividend payouts back into the security with the intent of generating additional profits from the investment over time.

This astonishing mathematical inertia is the primary generator of real returns from equity and fixed income investing.

According to its investor relations site, Apple (AAPL) went public on December 12, 1980, at $22.00 per share. The stock has split four times since the IPO, splitting on a 2-for-1 basis on June 16, 1987, June 21, 2000, and February 28, 2005. The stock last split on a 7-for-1 basis on June 9, 2014.

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Disclosure: David J. Waldron's family portfolio is long AAPL and KO.

Copyright 2019 by David J. Waldron. All rights reserved worldwide.

Disclaimer: David J. Waldron's ...

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