What's an example of false (but sounds logical) investment method? - Seedly

Coffee Meets Investing

Asked by Anonymous

Asked on 07 Jul 2018

What's an example of false (but sounds logical) investment method?

1

Answers (1)

Sort By

Most Upvote

  • Most Upvote
  • Most Recent
Alvin Chow
Alvin Chow
Level 2. Rookie
Answered on 11 Jul 2018

High Returns on Invested Capital is a good investment.

Mauboussin showed how unusually high or low profits trend toward the average by tracking one thousand companies from 2000 to 2010. 

He ranked the businesses on economic profit – how wonderful each was – in the year 2000. And put them into five groups. The top group was the most profitable. These were the great businesses. He put the bad businesses in the bottom group. These, on average, lose money.

The chart below shows the results. For each of the five groups, there is a clear trend toward average profits. The highly profitable companies become less profitable. The loss makers lose less money. All trend toward average profitability:

0 comments

2