A Comment -- General Comments From an Expert (A Commentary)

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. What is the P/E Ratio? The price-to-earnings ratio, or otherwise known as the “P/E” ratio, is a financial metric commonly used to measure how expensive a stock is compared to its earnings. The ratio can be rephrased as the amount that an investor is willing to pay for every $1 of earnings for a specific company. The ratio involves two components; the first is the ‘P’ portion, which is the current price per share of the stock, and the second is the ‘E’ portion, which is the Earnings Per Share (EPS) of the stock. For example: if Stock A has a current price per share of $30, and an EPS of $1, then the P/E ratio is 30X (calculated as: $30 Price / $1 EPS = 30X P/E). To maintain a stable P/E ratio over time, the price must appreciate at the exact same rate as the earnings per share. For instance, for the P/E to remain at 30X in the next year, if the share price increases by 10% from $30 to $33, then the EPS must also increase by 10% from $1 to $1.1 (calculated as $33 Price / $1.1 EPS = 30X P/E). Unlock Premium - Try 5i Free

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Understanding time. Arguably the most common mistake investors make (aside from not taking the appropriate amount of risk) is not factoring in their time horizon when making an investment decision. A general rule of thumb to follow is that higher risk investments require a longer time horizon to realize their return potential and in the short-to-medium term, it may be a bumpy ride. This is important to understand as many investors sell out of an investment too early because they are not seeing the results they expect in the short term. Stocks fluctuate for various reasons on a day-to-day or even month-to-month basis that have little to do with a company’s underlying business performance or fundamentals. Often times it requires patience for the fundamentals to reflect in a company’s stock price. Understanding your time horizon is also essential as it largely determines how much risk one can take and what kind of assets are most relevant to own. Finally, your time horizon is ultimately a reflection of your goals and when you want to achieve them. Remembering this helps one avoid straying from their investment strategy. Unlock Premium - Try 5i Free

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Compounding and Exponential Growth. Compounding is essentially the same concept as exponential growth, and can be very beneficial to investors. An example of compounding using finances is the idea that if one were to double a penny every day for 30 days consecutively, the end result would be roughly $5,400,000. The interesting thought experiment with this example is that now knowing the end result is $5,400,000, naturally one would assume that the individual would have roughly $2,700,000 by the mid-point at day 15. However, the investor would have only accrued $164 by day 15. The lesson is that consistent investment returns can add up if given enough time. Unlock Premium - Try 5i Free