Comment, question or quotation of the day

15-07-2019 : Answer to the weekend brainstorming problem.

Let us first recall the problem: Thanks to your hard work, and also to the reading of the Vernimmen you must confess, you have identified a company that seems very promising to you with inexpensive shares. You buy 10 of its shares for 50 € each. Three years later, the price is 600 € and you consider that the perspectives that the company traces are still poorly reflected in its price. So you decide to buy an additional 100 shares for €600 each. One year later, the price reaches 1000 € and you decide to sell all the shares at that price. Which of the 2 purchases, the first or second purchase, was the most interesting from a financial point of view for you? You have made a great investment by buying 10 shares at 50 €, which 4 years later are worth 1000 €. Your IRR is 111%. On the second purchase, your IRR is much lower (67% in one year) while being very correct! But it is nevertheless the most interesting one from a financial point of view for you. It is the one that has enriched you the most: €40,000 compared to €9,500 for the first. Here we find the idea that net present value is a better indicator than IRR for comparing two investments. Having a very high rate of return on a small amount of money makes you feel good. It is certainly an intellectual satisfaction, but it will not change your life. It is better to have a smaller IRR on a much larger amount. Have a nice day  

12-07-2019 : Brainstorming problem for the weekend.

Thanks to your hard work, and also to the reading of the Vernimmen you must confess, you have identified a company that seems very promising to you with inexpensive shares. You buy 10 of its shares for 50 € each. Three years later, the price is 600 € and you consider that the perspectives that the company traces are still poorly reflected in its price. So, you decide to buy an additional 100 shares for €600 each. One year later, the price reaches 1000 € and you decide to sell all the shares at that price. Which of the 2 purchases, the first or second purchase, was the most interesting from a financial point of view for you? Good thinking and good weekend  



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The Vernimmen.com Letter

Number 120 of April 2019

News : Finance: green, sustainable and responsible? (2/2)

Statistics : French government bond yields since . . . 1752

Research : Spectacular deleveraging

Q&A : Can a growth rate to perpetuity be negative?

COMMENTS : Comments posted on Facebook