After my previous post on how to think about valuations, this can be considered a “follow-up” post on how to think about yield. Oftentimes, I read about comments in forums or the newspapers which mention how attractive some yields are for certain companies, REITs or business trusts. I also hear of friends, peers and colleagues talking excitedly about high yields and how easy it would be to beat the dismal 0.05% interest rate which DBS is giving on its savings accounts. But what most people may fail to realize or consider is that higher yield is usually accompanied by higher risk – both in terms of the business model of the underlying company/trust and the sustainability of the yield. In other instances, computation of yields is also not conservative as most people make use of past yields to justify purchase decisions by implicitly assuming that yields will carry on ......