Episode 77

77 - What is the source of your investment return?

The DIY Investing Podcast · Trey Henninger: Private Investor, Portfolio Manager, Business Strategist, and Value Investing Expert

May 24, 202034m 30s

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Show Notes

Mental Models discussed in this podcast:

Mean Reversion
Inertia
Reinvestment Rate
Return on Incremental Invested Capital (ROIIC)

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Show Outline

The full show notes for this episode are available at https://www.diyinvesting.org/Episode77

Source of Investment Return

Investments, as opposed to speculations or gambling, is a method of seeking returns while protecting principal. Therefore, it is critical to understand the source of your investment returns. You are not entitled to investment returns. You don't have a God-given right to earn an excess return on your investments.

So what is the source of your returns?

Hint: It will vary by the type of investor you are.

Examples:

Mean Reversion
- Net-Net Investors
- Value Investors
Inertia
- Momentum Investors
Future Business Performance
- Quality Investors
  - Low Reinvestment Rate
  - High Return on Incremental invested capital
- Growth Investors
  - High Reinvestment Rate (often 100%)
  - Low-Medium return on incremental invested capital
  - No dividends
- Dividend Growth Investors
  - Low-Medium Reinvestment Rate
  - Stable return on incremental invested capital

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