Rate Of Return On Capital – Our Best Guess

Rate Of Return On Capital - Our Best Guess by Greg Dowdall, Burgundy Blog

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Investors often have a notion about what is an acceptable or desired rate of return on their capital. This rate of return is typically expressed in percentage terms. For example, “I would like to make an 8% return on my money.” This desired rate of return could be based on a number of factors, such as:

• What an investor believes to be fair compensation for assuming various investment risks
• Extrapolation from past equity market returns
• A required return to meet a specific investment objective

It is our opinion that selecting a nominal return benchmark like 8% to measure and judge the performance of a portfolio (or an asset...