Count Your Dollar Yield

Most people get wrapped up over the share price of the company, when what really matters to business owners is actually the investment yield. For long-term investors, knowing your asset yield down to the dollar amount is a great way to shift your focus towards the long-term over getting preoccupied with short-term volatility.

Why not just use the earnings yield in percentage terms? Well, it can be difficult to keep track of your blended earnings yield across investments of different amounts, so calculating the dollar yield in a spreadsheet helps keep things more easily accountable.

Let’s use an example to illustrate. Suppose you had $500,000 to invest, and you invested it into the following stocks:

• $50,000 in CHTR at 4x PE

• $80,000 in META at 22x PE

• $40,000 in TTD at 17x PE

• $60,000 in LULU at 10x PE

• $30,000 in INTU at 20x PE

• $70,000 in GDDY at 15x PE

• $90,000 in PYPL at 11x PE

• $55,000 in CMCSA at 5x PE

• $25,000 in PDD at 9x PE

As you can see, trying to track the blended yield of the investments above can be highly complicated. At first glance, it’s not immediately obvious how much you’re earning in “interest” per year, nor does it tell you what the blended yield of your investments are.

Now let’s try and calculate the total yield of the aforementioned investments instead, and see if it provides more clarity on your blended earnings yield:

• CHTR: 25% earnings yield, annual yield of $12,500

• META: 4.5% earnings yield, annual yield of $3,636

• TTD: 5.9% earnings yield, annual yield of $2,353

• LULU: 10% earnings yield, annual yield of $6,000

• INTU: 5% earnings yield, annual yield of $1,500

• GDDY: 6.7% earnings yield, annual yield of $4,667

• PYPL: 11% earnings yield, annual yield of $8,182

• CMCSA: 20% earnings yield, annual yield of $11,000

• PDD: 11.1% earnings yield, annual yield of $2,778

• Blended: Total annual yield of $52,616, representing 10.5% earnings yield

See? It becomes so much easier to track your investment yield this way. More importantly, it gives you something to focus on besides the share price. This way you won’t really worry when the share price decides to do something uninspiring, since you’ve already locked in your yield.

The biggest benefit of counting your yield in this way is that it makes you laser-focused on the long-term. Companies only report their earnings once per quarter, so at worst you’d get a fright once every 3 months. That’s a heck of a lot better than being married to the tape and watching the share price bounce around minute-by-minute.

What doing this also achieves is it provides easy comparability to your cash flows. Say your goal is to retire comfortably, and your monthly expenses are $10,000. That would mean that you’d need to earn an annual yield of $120,000 by the time you retire. Let’s say that you retire in 10 years’ time. Hence, you’d need to grow your total earnings yield to a sum of $120,000 within 10 years. In the scenario above, you’d need to grow the total yield of $52,616 by 8.6% per annum in order for it to become $120,000 per year. This makes your investment process more “real”, as it gives you something solid to look forward to as compared to tracking the share price, where there’s low certainty about its future amounts.

Notice how this barely considers your capital, i.e. the share price. You can just focus on the asset yield without worrying about what the market will do. Speaking from experience, I think keeping track of your yields gives you a completely different perspective on your investments. It makes you think like a business owner, as opposed to a speculator trading pieces of paper. Where things gets substantial and exciting is after holding for a number of years, when your asset yields start to breach the 20% and above territory. Buffett has certainly achieved it before, so why can’t we?