hansenasset

Arithmetic mean is just a fancy way to say ‘average.’ So if you’ve ever calculated your car’s MPG, or a batting average, or your GPA, then you’ve used an arithmetic mean before. And for most things they work perfectly fine. But they’re completely useless for averaging stock returns. That’s because arithmetic mean is not meant … Read more

An accounting profit is how we normally think of profits. You buy a can of Pepsi for $1.00 and sell it for $2.00. That’s your accounting profit. But what if you could have sold the can of Pepsi for $3.00 instead? Well, then you’ve actually lost a dollar of economic profit. Economic profit is what … Read more

Also see: How to Think about Stock Ownership How to Analyze a Business Qualitatively Value Line Value Line is a great resource for looking through a lot of companies’ financials. Your local library’s website should grant you free access. There is also roic.ai. My eyes go straight to the revenue to see whether they have … Read more

My first article, How to Think About Stock Ownership, was a big hit, so here’s the next in the series. The first question I always ask myself is, do I understand the business? And if the answer’s no, that’s fine, just move onto the next company. And if you’re being honest with yourself, then the … Read more

First I’d like to talk about what a stock is not. A stock is not a random number generator on your phone. It is not a squiggly line that bounces up and down. It’s not a lottery ticket. A stock is a partial ownership in the underlying business. And in the long run, the stock’s … Read more

I can think of no other discipline with diminishing returns quite like stocks. Investing in a low-cost index fund that matches the S&P 500, (I recommend Vanguard’s VFIAX), will beat the average actively managed portfolio. And not just the actively managed portfolios of retail investors like you and me. No, I’m talking about Wall Street … Read more

When will you need the money? If you’re 40 and planning on retiring at age 65, then you have a long time horizon and should be in stocks. If you’re 25 and will need the money for a down payment on a house in 3 years, then you shouldn’t be in stocks. The stock market … Read more

We already talked about credit card debt. Credit card debt is obvious. You can’t hope to come out ahead if you’re paying a 20% interest expense. Other debt can be more tricky. Let’s say you’re locked into a 30 year mortgage at 4%. Should you invest in the stock market or pay off your mortgage … Read more

Depending on where you work, your job may match 50% of your contributions up to 6% of your salary. That’s free money. A 50% return can take 7 years to materialize in the stock market. (That’s assuming a 6% annual return.) You should be fully contributing the matchable amount before investing else where. And you … Read more

DO NOT INVEST IF YOU HAVE CREDIT CARD DEBT! It makes absolutely no sense to invest in the stock market if you have credit card debt. Credit card debt is typically in the 19-24% interest range (creditCardInterest). The stock market has historically returned 9.9% (stockReturn). So you’re paying 19-24% in interest to acquire 9.9% in … Read more