Completing a Trip Around the Sun

In a?recent blog (First Principles by The Ken) I read about the seminal topic of ‘why people write’? It made me reflect about my personal reasons for writing and I resonated with what was mentioned in the blog - that I write because it makes me think!

I turn 35 today :)?

As a ‘young’ student of capital markets, I thought of taking this milestone as an opportunity to write a short note on a core learning. A simple formula that acts as a compass for navigating not just the world of investments but also life in general.

Price = EPS x P/E

EPS is reality

P/E is perception

As investors we all want to invest in multibaggers. As indicated by this formula, multibaggers are formed by a combination of real earnings growth AND perceived multiple expansion. So, we look out for ideas which have a long future growth runway, and which are not already priced in i.e. not already valued at high multiples.

Similarly in personal life, one’s value can be a function of this formula where real consistent growth in terms of positive actions / maturity / spirituality compounds to get coupled with improved personal / familial / societal perception, leading to a structural growth story.

Company prices correct when companies do not perform as per the anticipated / guided earnings growth rate (a controllable). This leads to the typically out of whack multiples which were originally discounting the future beyond limits, to start falling. Sounds familiar in the current market scenario?!

Drawing a parallel, we as individuals can grow by focusing just on the controllable factors of our real personal growth (our EPS) and leave the uncontrollable (our P/E) to the intelligence of the masses (Common sense?). This simple but not easy formula, I believe, can hold us in good stead as we navigate our lives to be better forms of our previous selves, QoQ, YoY... :)

P.S. DMs open for birthday wishes in the form of compelling investment tips :)

Sources for graphics: DSP Mutual Fund, Bluechip_memes