Knowing why you bought that stock, or are thinking about buying that stock is important in what to look for in characteristics. Are you
- Looking for a high growth rocket that will double or triple your money?
- Are you looking for company that compounds wealth steadily over time that you are willing to hold for the long term?
- Do you want a reliable dividend yield for the long term?
Answering each of these questions is important since the dividend investor was shocked recently by the cuts in dividends of the Energy companies in Canada and that has compounded the loss of income with a large loss in the original investment. The reason NAV is an important metric to look at is that if you know the company is overvalued, the risk is high if the management makes a miss step, or the industry takes a downturn like the 2014 – ? drop in oil price. Many companies went from trading at 2-3 times their NAV to stop dropping only when a their price dropped to a price supported by a value metric, some are still overvalued and purchased with caution.