Want higher returns? Pay a lower price.

When should you not buy a Buy recommendation? When it fails to meet your personal return hurdle. If you’re seeking a long-term annual return of greater than 10%, then you wouldn’t buy a stock that might only generate 5-8%. Let’s examine what this means with a hypothetical example. Assume you know that a stock’s intrinsic value will be $10 a share in five years – and that its share price will equal its value then too. Also, assume that the annual dividend yield on your purchase price is 4%. In reality you never know a stock’s value, let alone its future price. But you’re still implicitly making judgements about the potential returns when you buy shares.