How Much Returns do I look for when Investing?
I was on a call some weeks ago with one of the members of my Investment Research Partnership and he asked me how much returns do I look for when investing.
We know that average market $SPX500 returns are 10% (8% with inflation). Warren Buffett $BRK.B returned 19% while Peter Lynch 29%. How much should you aim for?
Not everybody should aim the same. For example, if you're going to read the old letters of Warren Buffett, you'll see that he was returning 30-40% a year but now the size that Berkshire Hathaway is, it is very hard to achieve. My best investment this year is GameStop $GME which returned over 300%. This is not something that Warren Buffett can do as GameStop is too small for his portfolio.
If you're not a full time investor, then seeking above 15% is unreasonable.
The rate of return of your portfolio depends on each individual investment. When calculating the intrinsic value of a company we use a discount rate. Another way to look at the discount rate is that it is the required rate of return.
To find the discount rate, you need to look at the risk free rate (normally 10-year US Treasury yield) and also the best investment in your portfolio. The only reason why you will invest in a new company is because you can get a better return than what you're already having.
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