RETIRE ON TRACK: The real magic of investing begins when you start using ratios
Many sidelined savers don’t invest because they’re what popular psychology writers call “right brain thinkers,” the sort who think intuitively rather than by logic and numbers. For some, the thought of seeing rows of numbers gives them epic anxiety. Maybe you’re one of them. If you are, know that you may not be giving yourself enough of a chance. But even if there’s no way you’ll ever lull yourself to sleep with math proofs, you can still pick some great stocks, once you know two things.
First, the most valuable business talent to have has nothing to do with Excel spreadsheets. It’s a talent for spotting what will be hot and what won’t. It doesn’t take a genius to expect Apple will sell a lot of iPhone 15s. But it will take some serious insight to see early on who will be the big winners in the rapidly approaching immersive virtual reality we’ll be wearing on our heads, or whether hybrid work will become permanent or transition back to the old ways. If you can be right about a huge trend (or when a current trend is going to reverse), sometimes that’s all it takes. The best way to prepare to spot those opportunities is by being well read and observant.
If you don’t have a crystal ball and feel it’s unlikely you’ll ever get one, there’s still hope. The language of business will always include numbers, but, if you shop for groceries, you can shop for your investments. Most of the numbers are descriptive and don’t require any calculations. With practice, they’re easily understood.
They are valuable. They help compare one company’s profitability against another company or maybe against its industry, the overall market or simply the company’s history. Usually, we are noting how much one number is different from another in the past or from a similar company. No calculus necessary. If you can spot when a pound of beef is more expensive, you’ll be able to tell when a company is earning more profit. All from the comfort of your PC or while holding your phone.
The real magic, though, begins when you start using ratios. You already are; anything you buy that’s priced with a “per” is using a ratio. You use ratios when deciding whether it’s cheaper to buy 12 single roses or a dozen at a time, or maybe whether to buy two smaller outboards or one big one. Ratios make it simpler to compare numbers from different companies. Dividend yield is simply the expected stock income divided by the share price. If a stock is expected to pay $2.00 in annual dividends and is priced at $100, it’s paying a 2% yield. If another stock is also paying $2.00 in annual dividends but only costs $50, then your money is working at 4%, which is even better.
Math is part of our daily lives and you’re already good at it, even if you don’t think of it as math. But, once we’re out of school and away from the tests, math becomes a lot easier. Calculators are now allowed. No one is timing us and, above all, the internet is dying to teach us whatever we want to know. And, if you want your money to work for you, a little bit of effort on your part will take you a long way.
Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or eguido@aksalawealth.com. Read more of his insights at heraldtribune.com/business. Securities offered through Avantax Investment ServicesSM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory ServicesSM, insurance services offered through an Avantax affiliated insurance agency. 8225 Natures Way, Suite 119, Lakewood Ranch, FL 34202.
This article originally appeared on Sarasota Herald-Tribune: EVAN GUIDO: Real magic of investing begins when you start using ratios
