Earlier this week, I talked to you about a game-changer for investing: Yield-to-Growth Ratio.
As I explained, Yield-to-Growth is the first of my three golden ratios for longer term investing.
Today, I want to dive into another one of my golden rules: the Equity Ratio.
It’s super simple and it can really make a difference you’ll see in your portfolio.
What is the Equity Ratio?
In plain English, the Equity Ratio looks at the trend of a company’s available shares.
When the number of available shares keeps going down, it means the company is buying back its shares, reducing the overall number of shares in circulation.
Why is this important? Well, when a company buys back its shares, it’s a sign that they’re confident in their financial health and future prospects.
It also means that each remaining share represents a larger ownership stake in the company, which can be good news for shareholders.
Think about it: If you own shares in a company and the number of shares keeps decreasing, your slice of the pie gets bigger. It’s a strong indicator that the company is doing well and is committed to returning value to its shareholders.
A Practical Example: Apple (AAPL)
Apple is a household name, known for consistently delivering value to its shareholders.
Since 2012, Apple has reduced its outstanding shares from around 26.5 billion to about 15.5 billion.
This reduction means each remaining share represents a larger ownership stake in the company.
For investors, this means more stability and a greater share of the company’s profits. By focusing on companies with strong equity ratios like Apple, you’re setting yourself up for more stable, long-term growth in your portfolio.
Why You Should Care
So, why should you care about the equity ratio when picking stocks?
Well, it’s all about stability and long-term growth. Companies with high equity ratios are usually more stable and better positioned to grow over the long term.
They have the cash to run their business, invest in new projects, pay dividends, and constantly engage in share buybacks.
By focusing on companies that consistently reduce their outstanding shares, like Apple, you’re investing in businesses that are actively working to increase shareholder value.
This strategy not only enhances your portfolio’s stability but also boosts your potential for higher returns over time.
Remember, the equity ratio is just one piece of the puzzle, but it’s a crucial one for building a resilient and profitable investment portfolio.
The Power of Combining Ratios
Just like with the Yield-to-Growth ratio, the equity ratio isn’t the only thing you should look at.
But when you combine it with other key factors, like yield-to-growth, it can help you make smarter investment decisions.
By focusing on important, but little-known metrics like this, you’re setting yourself up for more stable, long-term growth in your portfolio.
There’s one more crucial factor that can make a big difference for your portfolio.
To discover the final key and get the full details on how I use these ratios, click here to watch this video I recorded for you.
Trade well,
Jack Carter