When investors like us invest in the stock market, the goal is always trying to grow our wealth over time.
Investors are generally thrilled by the prospect of growth in general, whether they are referring to their income, savings or even the companies that they invest in.
We just love things going in the “up” and “grow” direction.
It is so tempting for investors to see their companies growing by double digit each year because i.) they expect the management to take the shareholder’s earnings and reinvest them to propel for further growth or ii.) Higher growth means higher dividends that the management can decide to payout or iii.) the share price would eventually re-adjust themselves to the same valuation.
What do I mean by that?
For example, Colgate’s share price is $63 today. If Colgate’s valuation based on price to earnings ratio is …