Anxious about retirement, so I started investing in stocks DAY 40 [The Essence of PER: Why Evaluate Based on Earnings]
― Walking with Haru, Investment Record at Age 60, Day 40 ―
Why do investors look at "earnings"?
I watched one video today as well.
The theme was "The Essence of PER."
It's a continuation of yesterday.
📚 What I learned today: The essence of PER
1. Investors focus on "earnings"
In stock investing, what investors pay the most attention to is the profit a company generates.
Rather than a company's assets (land, equipment, etc.),
how much that company can earn each year is a far more important criterion for judgment.
That is why it is essential to think about stock prices based on earnings.
PER = Stock Price ÷ EPS (Earnings Per Share)
If current earnings continue, how many years will it take to recover the investment?
I write about this in detail in the apartment management section.
2. A company's earnings belong to the shareholders.
However, it does not mean it returns to you as your own money immediately.
There are two main ways a company uses the profits it earns.
Dividends: Directly returning to shareholders
Reinvestment: Using it for further growth
Most companies aiming for growth choose reinvestment.
3. Reinvestment leads to an increase in stock price
When a company grows through reinvestment, its profits increase.
When profits increase, the company's value (market capitalization) rises.
When market capitalization increases, the stock price rises.
In other words, even if it doesn't come back directly in the form of dividends, the structure is such that profit returns to you in the form of a rising stock price. structure.
Profit increase → Company value UP → Stock price rise → Your profit
This is the basic mechanism of investing.
④ What history proves
Looking at it long-term,
if a company's profits increase, the stock price will rise.
History proves this.
That is why investors are always thinking, "Will this company's profits increase in the future?"
PER is a numerical representation of that expectation.
⭐️ Point
What investors look at is "profit".
PER is the number that indicates "if current profits continue, how many years will it take to recoup the investment?"
If profits increase, the stock price will rise. That is the essence of investing.
💬 Satsuki's questions and Haru's answers
🌸 Me: "So you mean that even without dividends, profit returns to me through the stock price rising?"
🌱 "That's right. Growth companies prioritize reinvestment over dividends. As a result, the company grows and the stock price rises. If you can sell it at a higher price than you bought it for, that becomes your profit. This is called a capital gain." - Haru
🌸 Me: "Then, is investing that focuses on dividends different from investing that focuses on stock price appreciation?"
🌱 "The direction is different. Focusing on dividends is called income gain, and focusing on stock price appreciation is called capital gain. Both are the same in that they focus on profit. However, for long-term asset building, it is said that aiming for capital gains by investing in growth companies is more likely to yield larger returns." - Haru
Dividends, or stock price appreciation?
Even though it's the same "profit," the way you receive it is different.
I felt like my map of investing was expanding little by little.
📝 Today's summary in one sentence
Investors look at earnings. If earnings increase, the stock price rises.
Even if it doesn't come back directly as dividends,
it comes back to you in the form of an increase in stock price.
That is the essence of investing.
I watched the video, took notes, and summarized them into an article.
A total of one hour.
One hour every day. That is all it takes.
I believe that consistency is my greatest talent.
Next time, 'Earnings Per Share and the Components of PER'.
I will dig deeper into the two numbers that make up the stock price formula.
I will continue tomorrow, too. 📚 Click here for the related article for DAY 40
📣 'Walking with Haru and Friends' is in preparation
I am creating a place where friends who have started investing just like me
can report their progress and support each other in staying consistent.
If you would like to participate, please let me know in the comments 🌸
#FundamentalAnalysis #PER #CapitalGains #IncomeGains #InvestmentBeginner #InvestingInYour60s #RetirementAnxiety #StartedWithAI #WorkingTogetherWithHaru
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