Cows are simple, beautiful creatures.
They also stand as the perfect metaphor for investing as well.
Let me give you an example.
There’s a belief amongst some investors that if a share price drops, it impacts how much dividend (income) it pays you. It doesn’t.
I’ll show you what I mean.
Imagine for a moment, you’re the proud owner of a cow and she produces 5,000 litres of milk per year. And let’s say she’s worth $1,000.
Now, suppose the market for cows drops a whopping 50% which means your cow is now worth $500!
Do you think, just because the price on her head has halved, she’s going to eat less grass and produce less milk?
Of course not! She’s going to keep grazing regardless of how much she’s worth.
Shares are exactly the same.
Why Shares Are Like Cows
The price of a share doesn’t determine how much it pays you in dividends just like the value of your bosses business doesn’t determine how much you get paid for the work you do. The two are totally unrelated.
(In fact, do you even know what your employers business is worth? See what I mean).
Its analogous with suggesting the price of a car determines its performance. Everyone knows that’s not true. Rather, the performance of a car determines its price (or at least should).
Cows and shares are the same.
A share price doesn’t determine a stocks dividends any more than the price on a cow’s head determines how much milk she produces.
The tail doesn’t wag the dog (or cow).
Dividends come from the profits a company makes, and profits come from the money their customers spend with them. It’s as simple as that. Grass equals milk.
Rental properties are the same. The value of a property doesn’t determine how much rent a landlord receives. However, the rental yield can certainly influence the value of a property.
Cows and shares are the same.
Put simply, if you want to know what the ideal investment looks like, it should look like a cow in milk (lactating).
And that’s why I love cows. Always have. Always will.
And why I think you should too.
Have a great weekend!
Adam
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Information provided by Suncow Wealth is general in nature and does not take into consideration your personal financial situation. It is for educational purposes only and does not constitute formal financial advice. Remember, the value of any investment can go down as well as up. Before acting, you should consider seeking independent personal financial advice that is tailored to your needs. Suncow Wealth Pty Ltd is a Corporate Representative No.441116 of AFSL 342766.