We discovered some of the secrets to Warren buffet investing strategies and at a perfect timing as the market is falling, some might thing how is this a perfect timing, well think of it like this, when a store has a sale would you go buy from it or wait for the sale to end and go but from it, exactly!
Currently the market is on sale for all major stocks & cryptocurrencies. Now is the perfect time to learn one more thing about the greatest of all time investor Warren Buffet.
Ever heard of ROE? It stand for Return on Equity.
Roe = { net income / shareholder equity } x 100
You might start thinking… wow wow wow, I didn’t sign up to learn math here. Well if you hate money, feel free to leave. Want to take care of yourself and future family members, this is the most simplest math formula that you will ever learn and you will use it in real life unlike the Pythagorus theorem you learned in school with no use in real life application, what a waste of tike that was.
Return on Equity (ROE) basically will tell you whether management is good at deploying the profits they made in the business to make even more profit or they are bad at managing a business, which later can tell you whether to fire those managers or invest in this business or not.
Net income: is companies profit after taxes and expenses
Shareholders equity: amount of money invested by shareholders including you if you are the owner.
Higher ROE means the company is efficient at generating profit, and vice versa.
Example to get this more understandable for you.
You invest $50 In Lemonade stand, your Net Income after a month is $20 profit.
ROE = {20 / 50} x 100 = 40%
Now a shareholder joins with a $100.
Your money as owner = $50
Shareholder = $100
Total Shareholder Equity = $150
Profit next month remained the same= $20
ROE = {20 / 150} x 100 = 13.33%
Means a bad CEO is in the company as he is failing to manage capital to make more profit. Inefficient!
But if profit next month has become $60
ROE = {60 / 150} x 100 =40%
Means the CEO is efficient and good at managing capital, worth investing in the company.
Extra note as there are trickery in public companies that they don’t want you to know about.
If company takes debt, they skew the results in their favor and trick you into investing with them, look at the example below.
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