A Magic Number for Long Term Returns

A powerful number when it comes to long-term returns in the stock market.

I mentioned in another post that investing $100.000 in Apple ($APPL) in the nineties would have returned over 40 million USD today.

What is needed to deliver such incredible results? In essence, it’s simple. We want to see a company that has a return on invested capital (ROIC) that is high and stays high over the years. Enough? Not yet.

We also want to see a company that grows, that keeps investing in the business while at the same time manages to keep a high ROIC.

Then we’ll see a growing and profitable business that will grow its valuation, inevitably.

ROIC and Assets Growth, year over year. This is what we want to see.

Companies with high ROIC and positive levels of Assets Growth for many years are not easy to find. Why? Because high ROIC brings competition. Competition brings declining ROIC. Unless the company manages to protect its ROIC from the competition.

The historic average ROIC for the whole SP500 is around 6% which is about the average cost of capital and around the average rea…