Reasoning from 200 Years Ago is Still Valid Now Factors to Consider When Deciding to Sell or Hold

Does a Stock’s Return Really Determine a Company’s ROE?

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I look at it this way: The average annual total return from equities over long periods of time has been around 10%. When you clean up the accounting, the real return on equity [ROE] of American business averages in the low teens. So our conclusion is that a stock’s return will approximate the company’s ROE over time, given a constant valuation and absent distributions. So we choose to swim in the pool of companies where the returns are a whole lot better than average, in the 20% range.
Source: http://www.valueinvestorinsight.com/
Tags: value, ROE, stock, return