The price of gold has travelled a long way up since the rally started in late summer 2018. However, I’m aiming to make a million with shares, not gold.
However, I do acknowledge those holding investment vehicles tracking the price of gold have done well over the past 20 years. As I write, the price of the shiny stuff is up more than 600% since its low at the beginning of the century.
How I’m aiming to make a million with shares
But for the next couple of decades, my plan involves investing in shares. I don’t know if gold is capable of putting in another multi-bagging performance over that period. But I’m as sure as I can be that carefully chosen share investments have the potential to do it for me.
Whereas gold is a passive substance that doesn’t do anything on its own, shares are backed by businesses that can do plenty. Indeed, I like to think of businesses as active entities that can build up their own value while I hold their shares.
Businesses have the potential, for example, to increase their selling prices to keep up with inflation. And when they do that, profits will rise a bit and that’s often reflected in a gradually elevating share price. On top of that, companies can pay shareholder dividends, which is a bit like receiving interest from a cash-savings account. However, every year, the business can increase its dividend as well.
But that’s not all. Businesses can grow. They can increase the value of revenues they generate, increase their earnings and assets and push the shareholder dividend payments to greater heights. And when all that happens, the share price tends to rise as well, boosting my portfolio with both income and capital increases. I just can’t get those benefits from passive, shiny lumps of gold.
A powerful triangle of factors
So, I’d aim to start making a million in 2021 by working hard at selecting shares. And when looking for suitable and promising stock investments, I’d consider a triangle of factors. I’d begin by looking for decent quality indicators, such as high profit margin and good returns on capital. And I’m always keen to see a solid record of revenue, earnings, cash flow and shareholder dividends.
Then, with the quality and operational momentum established, I’d consider valuation metrics. And valuation would be the second side of the triangle. Billionaire investor Warren Buffett, for example, tends to look for quality selling at a fair price.
The third side of the triangle is to identify a good reason to believe the operational momentum will continue. I want the underlying business to expand and improve in the months and years ahead while I hold the company’s shares.
Searching for quality, value and ongoing operational momentum is a powerful triangle of factors capable of powering my portfolio through 2021 and beyond. And if I get it right, the year could produce a big step in the direction of making a million.