A 20% Earnings Yield isn't automatically better than 8%.
Twenty years of revenue growth doesn't guarantee another twenty.
Metrics do not exist for their own sake. They are merely attempts to describe something about a business and the investment proposition before us.
Revenue Growth isn't merely a percentage calculated over ten years.
Earnings Yield isn't merely the inverse of a P/E ratio.
Public Float isn't merely the percentage of shares available for trading.
Behind each of them sits a much simpler question.
Has this business actually grown?
Am I paying a sensible price?
Can I realistically own this investment?
Over the past few weeks, while screening businesses and refining the investment rubric behind Glavcot Insights, I realised that every time I thought I had found another useful metric, it simply led me back to another question. Not about the metric itself. But about what it was really attempting to describe.
Past performance is not indicative of future results.
Every prospectus reminds us of that.
Nevertheless, if I had to choose between a business that has compounded revenue for ten years and one that hasn't, I know where I would begin my work.
Ten years does not guarantee another ten.
It merely provides evidence.
Revenue Growth (10-Year CAGR) does not attempt to predict the future. Instead, it asks whether management has demonstrated the ability to grow through changing customer preferences, economic cycles and competitive pressures over time.
Growth, after all, is easier to admire than it is to sustain.
No metric can promise us another decade of success. But a decade of disciplined execution should at least earn a business our attention.
Revenue Growth isn't trying to predict the future. It is simply asking whether the business has demonstrated the ability to get here.
Suppose I offered you two choices.
The first is a ten-year government bond paying 3%.
The second is a business currently generating an Earnings Yield of 8%.
Which should you choose?
The answer, of course, is neither. Not yet.
One offers certainty. The other offers possibility.
The question isn't whether 8% is larger than 3%.
It is whether the additional uncertainty is sufficiently compensated.
An attractive Earnings Yield does not tell us whether the business is exceptional. Nor does a low Earnings Yield necessarily make it a poor investment. Wonderful businesses often command premium valuations for very good reasons.
Instead, Earnings Yield asks a much simpler question.
Am I paying a sensible price for the earnings power that exists today?
It is not a prediction of future returns.
It is merely the starting point of the conversation.
This may be the least discussed question of all.
Unless you intend to acquire and operate the business yourself, every investment is ultimately a minority ownership proposition.
Minority ownership brings with it different questions.
This goes beyond Public Float. It is really a question of investability.
A business may possess excellent economics. It may have strong margins, outstanding returns on capital and exceptional management. Yet if ownership is excessively concentrated, liquidity is limited or minority shareholders have historically been treated poorly, the investment case becomes materially weaker.
Sometimes, the problem isn't the business.
It's whether ownership itself is practical.
Many of these considerations were explored further in When a Good Business Is Still Hard to Own, where I discussed why ownership itself can sometimes become the investment problem.
A wonderful business is not automatically a wonderful investment.
We're all familiar with Warren Buffett's famous words:
"Price is what you pay. Value is what you get."
They remain as true today as when they were first written. Because investing is not complete when we become owners. One day, perhaps years later, we may cease to be owners too.
What does it actually mean?
A business can tell a wonderful story. Its numbers often tell us where that story has been. But numbers tell stories of their own too. And sometimes, we become so captivated by them that we forget to ask what they are attempting to tell us.
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