This one is easiest to breakdown as a number problem. Say you purchased $100 worth of stock XYZ. After a 40% decline your original $100 investment is worth $60. $100 * -40% = $60. To breakeven you will now need to gain $40. $40 / $60 = 66.67%
Correct Answer was D
3. Yield on Cost
There was a little spoiler in this question as the stated yield (2.80%) was the correct answer to question 1. There are several ways to calculate the answer. The simplest is to take 2.8% and multiply it by 1.15 five times. That will give you 5.63%. You could also use the following formula 2.8% * (1.15)^5 that also yields 5.63%.
Correct Answer was C
4. Dividend Growth
This is also easier solved when turned into a numbers problem. Since both stocks are priced the same at time today, lets just assign them a price of $100. This way we know Stock A pays a $6 dividend and Stock B pays a $2 dividend. You can then multiply Stock A's $6 dividend by 1.02 and Stock B's $2 dividend by 1.1 in a spreadsheet until Stock B's dividend exceeds Stock A's dividend. It takes 16 years for Stock B to pay $8.35 which is higher than Stock A's $8.08.
Correct Answer was C
5. Best Growth Rate
This question was really a guess or you could have looked up each company's 5-year dividend growth rate. Cintas has the best 5 year DGR of 18.78% according to Seeking Alpha.
That's a tough question to answer. I don't have any one book or reference point that I can recommend. I've read plenty of books on investing and while they were great I've always taken away more of the philosophical benefits of investing rather than technical knowledge. Technical knowledge can be a bit dry content to read. Most of what I know about investing and dividends was learned through curiosity. When I read or see something I crave to understand it, so I try to figure it out for myself. Over time this has broadened my understanding of the stock market and investing. My advice would be general in nature, read and listen to everything you can and take away bits and pieces that peak your interest. Research things that interest you until you understand them. Focus on what interests you rather than what others think you should know. Find your corner of the market and become an expert of that subset of stocks.
As Warren Buffett once said, you don't have to be the smartest person to do well in the stock market. Numbers and formulas will only get you so far. Patience, conviction and the ability to remove emotions from your decisions will play a bigger role on your success than crunching data.
Most of what I do is focused on finding a small subset of potentially high quality companies. Then figuring out if they are reasonably valued and if they present a good enough potential return. But the toughest part is actually investing in these companies and patiently waiting for them to grow my capital and income, with no guarantee that they will.
You're going to make a lot of bad decisions in investing, but if you can make more good than bad decisions the final outcome will be great.
Thank you for the reply. I agree with you and really enjoy your content, podcasts etc. The controlling of emotions is so important, I feel if I can just get that close to perfect I will be a much better investor! I'm happy to tell you it has improved greatly from my beginnings as a investor 3 years ago.
Here are the answers and the math behind them.
1. Yield
$3.78 / 134.98 = 0.0280041488 * 100 = 2.80%
Correct Answer was A
2. Losses and Gains
This one is easiest to breakdown as a number problem. Say you purchased $100 worth of stock XYZ. After a 40% decline your original $100 investment is worth $60. $100 * -40% = $60. To breakeven you will now need to gain $40. $40 / $60 = 66.67%
Correct Answer was D
3. Yield on Cost
There was a little spoiler in this question as the stated yield (2.80%) was the correct answer to question 1. There are several ways to calculate the answer. The simplest is to take 2.8% and multiply it by 1.15 five times. That will give you 5.63%. You could also use the following formula 2.8% * (1.15)^5 that also yields 5.63%.
Correct Answer was C
4. Dividend Growth
This is also easier solved when turned into a numbers problem. Since both stocks are priced the same at time today, lets just assign them a price of $100. This way we know Stock A pays a $6 dividend and Stock B pays a $2 dividend. You can then multiply Stock A's $6 dividend by 1.02 and Stock B's $2 dividend by 1.1 in a spreadsheet until Stock B's dividend exceeds Stock A's dividend. It takes 16 years for Stock B to pay $8.35 which is higher than Stock A's $8.08.
Correct Answer was C
5. Best Growth Rate
This question was really a guess or you could have looked up each company's 5-year dividend growth rate. Cintas has the best 5 year DGR of 18.78% according to Seeking Alpha.
Correct Answer was B
I've have A,C,A,B,D. Thanks this was fun!
Good try! I’ll include the full answers in a future post just in case anyone would like to see how the math works.
Wow. I didn't do good. Gotta bone up for sure. Thanks for pointing out some weaknesses for me.
A bigger failure would be not trying at all, so props to you for giving it a shot. Also these questions were not easy so don’t feel bad.
Any resources, books or the like you would recommend to improve my knowledge?
That's a tough question to answer. I don't have any one book or reference point that I can recommend. I've read plenty of books on investing and while they were great I've always taken away more of the philosophical benefits of investing rather than technical knowledge. Technical knowledge can be a bit dry content to read. Most of what I know about investing and dividends was learned through curiosity. When I read or see something I crave to understand it, so I try to figure it out for myself. Over time this has broadened my understanding of the stock market and investing. My advice would be general in nature, read and listen to everything you can and take away bits and pieces that peak your interest. Research things that interest you until you understand them. Focus on what interests you rather than what others think you should know. Find your corner of the market and become an expert of that subset of stocks.
As Warren Buffett once said, you don't have to be the smartest person to do well in the stock market. Numbers and formulas will only get you so far. Patience, conviction and the ability to remove emotions from your decisions will play a bigger role on your success than crunching data.
Most of what I do is focused on finding a small subset of potentially high quality companies. Then figuring out if they are reasonably valued and if they present a good enough potential return. But the toughest part is actually investing in these companies and patiently waiting for them to grow my capital and income, with no guarantee that they will.
You're going to make a lot of bad decisions in investing, but if you can make more good than bad decisions the final outcome will be great.
Thank you for the reply. I agree with you and really enjoy your content, podcasts etc. The controlling of emotions is so important, I feel if I can just get that close to perfect I will be a much better investor! I'm happy to tell you it has improved greatly from my beginnings as a investor 3 years ago.
A, D, C, C, B
You are the winner!!! Great job. I will upgrade your subscription soon.
Thanks, looking forward to it :)
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I’ll dive into it when I have some time again to read up 😅 Thanks!
My pleasure. You have plenty of time (30 days)
I’ve got: ADCBB
So close… the correct answers are ADCCB