Managing one’s personal finances, in many cases, requires picking stocks to create portfolios in registered retirement accounts or savings accounts, such as RRSPs. In this article, I’m going to highlight two key fundamental factors investors picking their own stocks should consider to maximize returns over a long-term investing horizon.
Most of the stocks we’ve seen advance to near record highs in this post-pandemic reality show higher margins and solid growth potential long-term. With investors less concerned with near-term volatility (we know this pandemic is terrible and has already been priced in), most investors have shifted their focus to 2021 or 2022 earnings and beyond. This gives a big advantage to stocks that are buoyed by higher margins and greater growth potential, using this investor's lens.
The other key common denominator which has driven present share price appreciation of so many winners in this market is the extent to which companies reinvest in their own businesses. The ability to earn above average market returns with their own company’s outperformance. This said reinvestment has generally been viewed by the market favourably.
Focusing on these two factors can help describe how stocks have increased in valuation despite a serious global pandemic. These factors also pave the clear direction as to which stocks are likely to outperform over the long term.
Invest wisely, my friends.
