It’s important to know your behaviour and emotional responses towards money in order to invest successfully. Improving your investment philosophy and investment processes can help eliminate irrational thinking. However, there are a few other areas that can help you recognise your behaviour and how to overcome it. The first step is to be aware of… Continue reading
The Psychology of Investing explained. The Psychology of Investing is the study of how emotional and mental influences affect an investor’s decision-making process. This includes what the investor believes, how they act and interact with the markets, and how they respond to different market cycles. Many investors do not consider the impact that psychology has… Continue reading
The Shareholder Yield Explained. The Shareholder Yield is a metric that measures how a company rewards its shareholders through three ways. Issuing dividends, conducting share buybacks, or reducing the company’s debt. This formula helps in evaluating how effectively a company distributes its resources, which ultimately benefits its shareholders. When analysing distributions, shareholders usually focus on… Continue reading
Terminal Value (TV) is a significant metric used by investors and finance professionals to determine the long-term value of a company. The Terminal Growth Rate is the estimated pace at which a company is expected to grow beyond the forecast period. TABLE OF CONTENTS: The Terminal Value explained. In valuation theory, a company’s value equals… Continue reading
Investment and financial markets frequently use the terms “Chasing Alpha” and “Market Beta”. Although they may seem like complicated financial concepts, all investors should understand how Alpha and Beta function in the investment world. Alpha and Beta are often used as measures to evaluate the performance and risk of an investment portfolio or an individual… Continue reading
The Weighted Average Cost of Capital (WACC) is a crucial financial metric that investors use to determine the value of a company’s combined pool of capital, debt and equity. TABLE OF CONTENTS: The Weighted Average Cost of Capital explained. The WACC is the average rate at which a company can expect to finance its business… Continue reading
The Capital Asset Pricing Model (CAPM) is a way to measure the cost of equity of a firm and the expected returns from an investment. TABLE OF CONTENTS: The Capital Asset Pricing Model explained. Investments come with risk, the higher the return the higher the risk. The CAPM model helps establish the relationship between the… Continue reading
The Risk Premium explained. The Risk Premium (RP) is the additional rate of return that investors expect to receive for taking on more risk when investing in stocks. This premium is above the Risk-Free Rate, which is the return that investors expect from a risk-free investment. Investors should be compensated for taking on additional risk… Continue reading
The Risk-Free Rate explained. The Risk-Free Rate is a theoretical interest rate of return that carries zero risk. Although technically all investments carry some level of risk, investors want a way to measure the rate of return against other safer alternatives to ensure that the payoff to risk-reward is in their favour. The Risk-Free rate… Continue reading
The Inflation-Adjusted return explained. The Inflation Adjusted Return, also known as the Real Rate of Return, is the Return on Investment after accounting for inflation. Inflation refers to purchasing power of money decreasing due to a general increase in the prices of goods and services. The inflation-adjusted return is a precise measure of the true… Continue reading
