National Grid shares<\/a> for my previous rationale. National Grid spends millions on maintaining infrastructure but is regulated as to how much it can charge and thus how much profit it can make.<\/p>\nI also went head first into AT&T, a company that has leveraged itself massively and has decided to compete with other media giants head first through its acquisitions of Time Warner and Direct-TV. I see very little prospect of above-market returns here, even with a hefty 6% dividend. Again, the capex requirements here are huge and the market already saturated.Now, there’s nothing wrong with T and NG – these are solid picks for older investor approaching retirement. The dividends both look safe and will pay handsomely dividends to those who are willing to forgo share price growth.<\/p>\n
Let me emphasise, I am not discouraging investments in such companies<\/b>, I remain absolutely convinced of reliable dividend payouts from the majority of such low-growth companies, even where high levels of capital expenditures are needed.<\/p>\n
But, it\u2019s time to admit that I have been blinded by my obsession of \u2018value\u2019 in an investment. For so long I held off buying outstanding, high growth companies, such as Visa, Mastercard, Facebook and Nvidia simply because of their high p\/e ratios.<\/p>\n
In turn, I missed out on the glaring competitive advantages and ability to make above average returns these companies have.<\/p>\n
Maybe it was my fault? <\/b>Maybe I wasn\u2019t valuing these companies appropriately? But, all looked expensive in relation to their 10 year p\/e ratios and the market and all went on to raise emphatically in value, bar Facebook as a consequence of its recent, overdone in my opinion, 20% drop.<\/p>\n
Here\u2019s a hard learned lesson \u2013 an important one to any investor.<\/b><\/p>\n
Looking at a company\u2019s 10 year p\/e ratio to try and determine value can hoodwink you into missing out on outstanding investments.Surely I can’t be alone in having dismissed outstanding companies with outstanding economic moats simply because they looked expensive relative to their 10 year p\/e or because they had ratios upwards of 30 even 40.<\/p>\n
Sure, it may assist you in painting a background of the company but it has absolutely no bearing on its current value.<\/p>\n
It is very possible that a company\u2019s future prospects have transformed dramatically and as a result the company deserves its high valuation.<\/p>\n
WHAT?<\/b><\/p>\n
Yep, <\/b>this is in complete contrast <\/b>to my previous approach to investing where I emphasised that one should only value a company on its current fundamentals, exclaiming that these along with the company\u2019s history are the only facts <\/b>that one can obtain about a company.<\/p>\n
The now glaring problem with this stance is that companies change.<\/p>\n
A company with an outstanding economic moat and enviable history of earnings growth may be about to face very predictable headwinds. For example, a pharmaceutical company that has just had a patent expire on its star product.<\/p>\n
On the other hand, a company with a dreadful or subdued history may have just launched a star new product that will catapult it to a much higher valuation. Just look at Apple pre and post iPhone.<\/p>\n
True. It is incredibly risky to try and predict a company\u2019s future. After all, the future is always uncertain. But, one must remember that one can only ever lose 100% of one\u2019s initial investment and that an investment\u2019s upside is theoretically without limit.<\/p>\n
So what\u2019s changed?<\/b><\/p>\n
I\u2019m still a Dividend Growth Investor.<\/p>\n
Dividend growth stocks offer enviable protection in economic downturns and instant returns via dividend for investors.<\/p>\n
BUT<\/b><\/p>\n
I am now tilting my portfolio more towards companies with higher growth prospects than my usual ultra conservative investments whilst also retaining many of my previous conservative investments for protection in a downturn.<\/p>\n
I have updated my portfolio page to reflect my current portfolio holdings.<\/p>\n
Remember to comment below and that I\u2019m always available to answer any questions via lewys@frugalstudent.co.uk.<\/p>\n","protected":false},"excerpt":{"rendered":"
The blog has been quiet and for that I apologise. But, I have finally finished my PGCE course after the most challenging year of my life. I really should write…<\/p>\n","protected":false},"author":1,"featured_media":2153,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/2133"}],"collection":[{"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/comments?post=2133"}],"version-history":[{"count":4,"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/2133\/revisions"}],"predecessor-version":[{"id":2148,"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/2133\/revisions\/2148"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/media\/2153"}],"wp:attachment":[{"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/media?parent=2133"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/categories?post=2133"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/frugalstudent.co.uk\/index.php\/wp-json\/wp\/v2\/tags?post=2133"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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