Avocado Report

What is a Dividend and How Does It Impact Share Price? A dividend is a portion of a company’s earnings distributed to shareholders, typically in cash or additional shares. Companies that generate stable profits often pay dividends as a way to reward investors. Impact on Share Price When a company declares a dividend, the stock price typically drops by the dividend amount on the ex-dividend date. This happens because the cash paid out is no longer part of the company’s assets.  What is the Ex-Dividend Date? The ex-dividend date is the cutoff date set by the stock exchange that determines which shareholders are eligible to receive the declared dividend. If you buy the stock on or after the ex-dividend date, you won’t receive the upcoming dividend. Instead, the dividend is paid to the seller of the stock.  For example: If a stock is priced at $100 and declares a $5 dividend, its share price will likely adjust to $95 on the ex-dividend date. The investor’s total value remains the ...

" Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it. " Compound interest is often called the eighth wonder of the world, a term attributed to Albert Einstein. He famously stated, " He who understands it, earns it. He who doesn't, pays it. " While this might sound like an exaggeration, the math behind it reveals its profound truth. Compound interest occurs when the interest earned is reinvested, allowing the investment to grow exponentially over time. This phenomenon, often referred to as "interest on interest", accelerates wealth accumulation and has been celebrated by great minds throughout history. Benjamin Franklin famously remarked, " Money makes money. And the money that money makes, makes money. " Similarly, Warren Buffett likened it to rolling a snowball (investment) down a long hill, where time and consistency lead to exponential growth. Let's now explore this concept...

Investors should develop the habit of assessing whether the current market valuation is overvalued, fairly valued, or undervalued when investing their hard-earned capital in the stock market. When a market valuation is considered overvalued, it does not necessarily suggest an imminent collapse. Similarly,  when a broad market is considered undervalued,  it does not guarantee an immediate bottom. However, this valuation indicator can provide investors a big picture of the risk-reward ratio of the market they are considering investing in.  Understanding stock market valuation is similar to understanding the  real estate market.  Knowing whether housing market prices are fair, overpriced, or underpriced can drastically affect your investment decisions and returns. When the market is fairly valued, it’s like buying a house at its appraised value - you’re making a reasonable investment with no overpayment, and there is potential for moderate returns if cond...

We’d like to start this blog with a quote: " To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information . What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework . " . This wisdom comes from Warren Buffett, the world’s most renowned and successful investor, who wrote this in the preface to "The Intelligent Investor" book. Experienced investors understand that achieving lasting success over the long term—whether 10, 20, 30 years, or more—is never an easy feat. Each day, many “investment” ideas circulate, with individuals often chasing one after another, hoping for overnight success. However, most fail to achieve this goal. Some may get lucky and achieve short-term success, only to lose their gains afterward. Others might have a brief moment in the spotlight, like a pop star who rises to fame overnight, only to quickly fade away...

Why 2% Inflation Target? The 2% inflation target is a widely used benchmark among central banks like the Federal Reserve, the European Central Bank (ECB), and others. It’s aimed at creating a stable economic environment—high enough to encourage spending and investment, yet low enough to prevent the erosion of purchasing power or excessive volatility in prices. But why is 2% chosen? It may seem like a random number selected by the central bankers. Why don't central banks aim for 0% inflation, implying a zero percent price stability target? Anything above that would be inflation, and anything below would be deflation. Central banks' lives would be simpler. However, t he reality is more complex than it appears.  The concept of a specific inflation target was pioneered by New Zealand in 1989. The Reserve Bank of New Zealand (RBNZ) was the first to adopt an explicit inflation target,  initially aiming for a range of 0-2% before later adjusting it to around 2%. This idea g...