Introduction
To me, fair value, as it relates to common stock investments, is manifest when the current earnings yield provided by the company’s profits compensates me for the risk I am taking by providing both a realistic and acceptable return on my invested capital. Most importantly, as will be explained later, current earnings yield and its relevance to fair value is independent and/or separate from future growth.
The Importance of Current Earnings Yield
When referencing my definition of fair value, it’s important to focus on the concept “current earnings yield.” There a couple reasons why