Riddles in the Dark

In Behavioral Finance, Interest Rates, Investment Planning, Stock Market by Landmark Financial Advisors, LLCLeave a Comment

I am making my kids read a classic novel before the movie hits theaters this November. It made me recall a riddle that the main character needs to solve to save his life.

This thing all things devours:
Birds, beasts, trees, flowers;
Gnaws iron, bites steel;
Grinds hard stones to meal;
Slays king, ruins town,
And beats high mountain down.

If you haven’t guessed it… this is Gollum’s riddle to Bilbo in the Hobbit. The answer is Time.

Time is the most important factor in investing, but has become bastardized by the likes of CNBC and the emergence of the Internet with stock updates by the second.

Why should your care what your investment is worth from day/day?

We continue to hear about individuals starved for income/yield, but they ignore stocks due to their volatility over the last decade. What they fail to realize is the power of TIME in equities that will greatly benefit the long term investor, and has done so for the last century. Consider that a stock of a quality company yields 2.25% (yield on the S&P500 is 2.29%) when purchased. What will the yield be after assuming the company raises their dividend by 10% per year:

* After 10 years our patient investor will earn a 5.83% on the investor’s initial cost of shares.
* After another 10 years that yield at cost increases to 15.13%!

This does not include the possibility of any appreciation in the company.

Be Patient… TIME is on your side.

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