This post explores the Late Harvard business professor Clayton Christensen work on disruptive innovation (The Innovator’s Dilemma: When new technologies cause great firms to fail), which could serve as useful mental model for the equity investor. Disruptive Innovation: The Source of Real Growth Disruptive innovation is an ongoing process inherent to capitalism that occurs whenever…
Tag: Growth Stocks
Growth stocks compound their returns at a high rate
Share Buybacks, Dividends and Optimal Capital Allocation
A company repurchasing its own shares may suggest that it is no longer able to reinvest its excess cash at high rates of return. Take IBM in the past ten years. Its share repurchase program, even at a so-called “deep discount”, was not necessarily welcomed as it was perceived as potentially impeding innovation and long…
Growth and Multiple Expansion: the “Twin Engines” of 100-Baggers
Stock price rises over time based on the quality of earnings and on how long those earnings can be reinvested at high rates of return. A business generating consistent high ROE and growth in revenue and book value compounds its re-invested earnings at a rate of return at least equal to its ROE, assuming no…
Great Businesses Compound Earnings At High Rates
GREAT BUSINESSES COMPOUND THEIR EARNINGS AT HIGH RATES The characteristics which growth stocks enjoy were studied by security analyst Thomas Phelps in a book published in 1972 entitled 100 to 1 in the Stock Market. $10,000 compounding at 26% for 20 years turns into $1,000,000. How high the price of a stock rises over time…