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New Hope Corp Ltd (ASX: NHC) shares are down 1.35% in early afternoon trading on Friday.

Shares in the S&P/ASX 200 Index (ASX: XJO) coal stock closed yesterday trading for $5.54. Shares are currently changing hands for $5.47 apiece.

Keep that price in mind, as it will enable us to address the question, do New Hope shares really pay a 17% dividend yield?

Does the ASX 200 coal miner really pay a 17.6% dividend yield?

The answer is yes.

And no.

Let me explain.

The ASX 200 coal miner reported some stellar half-year results on Tuesday, which saw New Hope shares close up 8.6% on the day.

On the back of record-high coal prices during the six-month period, the company saw its after-tax profits increase a remarkable 101% from the prior corresponding half-year period.

This encouraged the New Hope board to declare a 30 cents per share ordinary dividend and a 10 cents per share special dividend, both fully franked.

Now the stock doesn’t trade ex-dividend until 17 April.

Until that time, the official dividends over the last 12 months come from the final dividend of 56 cents per share (ex-dividend on 24 October). And the 30 cents per share interim dividend (ex-dividend on 14 April 2022).

With those numbers, New Hope shares pay a trailing yield of 15.8%.

Not bad. But a bit short of 17.6%.

However, if you hold the shares at market close on 17 April, you’ll then be holding a stock that’s paid out 96 cents per share over the prior 12 months rather than 86 cents per share. 

Buying in at today’s $5.45 per share, that works out to a yield of 17.6%.

The interim dividend will be paid on 3 May.

How have New Hope shares been performing?

As you can see on the chart below, New Hope shares have been strong outperformers over the past 12 months, up 60%.

For some context, the ASX 200 is down 6% over that same period.

The post Do New Hope shares really pay a 17.6% dividend yield? appeared first on The Motley Fool Australia.

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More reading

• Here’s how much I’d need to invest in New Hope shares to generate a $250 monthly income
• Here are the top 10 ASX 200 shares today
• Invested $1,000 in this ASX 200 share two years ago? Here’s how much passive income you’ve earned
• Why is the New Hope share price up 5% and leading the ASX 200 today?
• Top brokers name 3 ASX shares to buy today

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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I think that strategically investing in ASX shares could help me build my passive income, compound my wealth, and retire early.

Here are the three steps I’d take to make the most of the opportunities afforded by the Australian stock market.

3 steps I’d take to grow my passive income and retire early

Put my money to work

Investing in the stock market ultimately brings higher risk than, say, keeping cash in a high-interest account or buying bonds. However, greater risks often herald greater rewards.

Right now, an exchange traded fund (ETF) tracking the S&P/ASX 200 Index (ASX: XJO) – SPDR S&P/ASX 200 (ASX: STW) – offers a 4.71% dividend yield.

That’s about on par with the yield offered by many savings accounts right now, according to RateCity, but it doesn’t consider any potential share price appreciation. Though, no investment is guaranteed to provide returns or downside protection.

It also doesn’t factor in the compounding that could occur if I consistently reinvest my dividends between now and when I retire.

Doing so could speed up the wealth-building process now, and when I retire, I could take those dividends as passive income.

Make the most of the market’s ups and downs

It can be nerve-wracking to jump into ASX shares during periods of volatility. However, such times are often when the best bargains can be found.

The market – and the broader economy – tends to move in cycles as investor sentiment ebbs and flows. And when the market falls, shares in quality ASX companies tend to drop too.

That creates plenty of opportunities to snap up such companies for less than their true worth – known as value investing.

After snapping up a few such stocks, value investors typically wait for the market to reprice their shares. That can, in turn, increase their wealth-building and passive income opportunities.

Focus on growing passive income

Look to the future, and what do you see? The answer may well provide valuable investing guidance.  

Unfortunately, I don’t have a crystal ball. But I think I could grow my wealth by taking the time to consider what sectors or industries might experience growth in the coming years and decades.

That could help me recognise ASX stocks I think are capable of increasing their dividends as the years go by, allowing me to snap them up for cheap now and reap the rewards later.

The post Passive income hack: 3 simple steps to help you get rich and retire early appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• Telstra shares: Bull vs. Bear
• Here are the top 10 ASX 200 shares today
• Here is a pair of ASX 200 shares I would buy and never sell
• Here are the 3 most heavily traded ASX 200 shares on Thursday

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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S&P/ASX 200 Index (ASX: XJO) investors banking on a pause in interest rate hikes are likely to be disappointed.

The Reserve Bank of Australia (RBA) makes its next rate announcement on Tuesday, 4 April.

What’s happening with the RBA tightening cycle?

At its meeting earlier this month, the RBA lifted interest rates by another 0.25%.

That marked the central bank’s tenth consecutive rate hike and brought Australia’s official cash rate to 3.60%.

With that move largely priced in by the markets, the ASX 200 gained 0.6% immediately following the announcement.

Among the good news delivered by RBA governor Philip Lowe, he noted, “The monthly CPI indicator suggests that inflation has peaked in Australia.”

As for the not-so-good news, Lowe said, “It will be some time before inflation is back to target rates.”

He added, “The board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary.”

So why are futures markets now pricing in the likelihood of an April pause by the RBA?

Why ASX 200 investors should expect an April rate hike

The popular idea that the RBA might lift its finger off the rate hike button in April stems from the banking crisis that swept from the United States into Europe.

The Collapse of Silicon Valley Bank, the 18th largest in the US before its demise, rattled global markets and had many investors thinking the Federal Reserve would also pause its tightening cycle this week.

When the banking contagion spread to Credit Suisse, leading to the Swiss government’s engineered takeover of the fast-sinking Credit Suisse by UBS, many investors also thought European central banks would take a breather from further rate hikes.

And that same thinking is going on in regard to the RBA’s April meeting.

A pause by the RBA would most likely see a relief rally for ASX 200 shares. But investors shouldn’t expect one.

The US Fed, the European Central Bank, and the Bank of England all increased their nation’s cash rates at their most recent meetings. The Fed and BoE both hiked by 0.25% this week, while the ECB lifted rates by 0.50% last week.

And according to BIS Oxford Economics head of macroeconomic forecasting Sean Langcake, ASX 200 investors can expect similar action from the RBA.

“Central banks can walk and chew gum – they have other tools to deal with liquidity shortages, but reining in inflation still remains the primary goal,” Langcake said (quoted by The Australian Financial Review.)

Langcake added:

If the ECB and Fed have decided their markets can weather a rate hike, it would be very odd for the RBA to reach a different conclusion. Especially after the assurances they gave earlier this week on the strength of Australian banks.

Betashares chief economist David Bassanese is also forecasting another rate increase at the next meeting.

“My base case remains the RBA will raise rates once more in April and then signal a pause,” he said. “This depends on a still reasonably firm retail sales and monthly CPI report next Tuesday and Wednesday respectively.”

Now most ASX 200 shares are well-positioned to handle another 0.25% increase in borrowing costs.

But if the market is pricing in a pause, any rate increase could see the benchmark index take a tumble on the day of the announcement.

The post Investing in ASX 200 shares? Don’t bank on an RBA rate pause in April appeared first on The Motley Fool Australia.

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More reading

• UBS to acquire Credit Suisse. Here’s what you need to know
• Another day, another bank in trouble
• The CBA share price is on a rollercoaster today. Is Credit Suisse to blame?
• ASX 200 oil stocks are tanking. Is now the time to buy?
• ASX 200 bank shares are deep in the red on Thursday. Here’s why

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re on the lookout for some blue chip ASX 200 shares to buy, then it could be worth looking at three that analysts at Citi are recommending as buys.

Here’s why these could be the ASX 200 shares to buy now:

Aristocrat Leisure Limited (ASX: ALL)

Citi’s analysts are bullish on this gaming technology company and have a buy rating and $42.80 price target on its shares. The broker believes that industry data is pointing to the company outperforming its peers. It recently commented:

Data up to December 2022 show continued strength in US casino revenues and those of Aristocrat’s land-based peers. Aristocrat has also extended its performance gap to peers, coinciding with further market share gains in the premium-leased segment. Dragon Link is leading the industry in units added and more recent releases are also growing their installed bases significantly.

Goodman Group (ASX: GMG)

Citi is also a fan of this integrated industrial property company. The broker has a buy rating and $24.00 price target on its shares. It was pleased with last month’s half-year results and believes that tailwinds for industrial property will continue and underpin strong earnings growth in the coming years. It said:

GMG’s 1H23 result highlighted the extent of tailwinds still existing for industrial property which make for a strong earnings growth outlook not just this year but into multiple years in the future. […] We believe GMG will continue to outperform given its high-quality exposure and strong earnings growth potential in an uncertain macro environment.

Suncorp Group Ltd (ASX: SUN)

Finally, the broker is bullish on this insurance and banking giant and has a buy rating and $14.30 price target on its shares. While it is facing a few headwinds, Citi still believes that Suncorp has a solid outlook. It explained:

Despite a tough, likely insurance loss making period for motor insurance, SUN’s margin trajectory still looks solid with potential for further expansion. The top line is also growing at a healthy rate even if it may not accelerate in 2H as much as the market may have previously thought. Reinsurance market pressure remains a likely headwind but SUN remains confident it can price for any increases. So overall we stay positive, albeit we note the dilutive nature of the impending bank sale which likely pushes up out year multiples.

The post Citi rates these 3 ASX 200 blue chip shares as buys appeared first on The Motley Fool Australia.

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More reading

• This ASX 200 growth share’s outlook is ‘significantly strong’: Goldman Sachs
• Here are 2 high quality blue chip ASX 200 shares named as buys by analysts
• Top brokers name 3 ASX shares to buy next week
• Which real estate ASX shares should you buy now as interest rates top out?
• Analysts say these ultra high quality blue chip ASX 200 shares are buys

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The PolyNovo Ltd (ASX: PNV) share price has been having a tough week.

In morning trade, the medical device company’s shares were down as much as 6% to $1.71.

When the PolyNovo share price hit that level, it was down over 17% in the space of two days.

Why is the PolyNovo share price under pressure?

Investors have been hitting the sell button this week amid some major insider selling.

According to a change of director’s interest notice, the company’s chairman, David Williams, sold a large number of PolyNovo shares between 17 March to 22 March.

Williams sold a total of 4.75 million shares across this period for a total consideration of approximately $9.7 million. This equates to an average sale price of $2.04 per share.

Should you be concerned?

Insider selling rarely goes down well with the market. That’s because it is often regarded as a bearish indicator.

After all, if you were so confident that the PolyNovo share price was good value and destined to head higher, you wouldn’t be a seller.

But it is worth remembering that directors do have a life outside their company. And that is what has driven the sale of these shares.

PolyNovo explained that Williams needed the funds to support a US property purchase. It advised:

Chairman Mr David Williams has sold 4.75m shares, the proceeds of which will part settle a US property purchase.

The company also highlights that Williams still has a considerable holding following this sale and has no plans to offload any other shares in the near future. It adds:

Mr Williams still holds 21,384,432 fully paid ordinary shares and does not intend to sell more shares for the foreseeable future.

All in all, this appears to demonstrate that Williams’ interests remain firmly aligned with shareholders, making this selloff probably a bit of an overreaction.

The post PolyNovo share price falls 17% in two days after major insider selling appeared first on The Motley Fool Australia.

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More reading

• Why Core Lithium, National Storage, OFX, and Polynovo shares are dropping today
• Why Mesoblast, PolyNovo, Pushpay, and Weebit Nano shares are charging higher
• These ASX shares are being dumped from the ASX 200 index this month
• These 4 ASX shares could rocket this month: Here’s why

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended PolyNovo. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Estia Health Ltd (ASX: EHE) share price is having a sensational finish to the week.

In early trade, the aged care operator’s shares were up as much as 21% to $2.84.

The Estia Health share price has eased back a touch since then but remains up 16% at the time of writing.

Why is the Estia Health share price rocketing higher?

Investors have been scrambling to buy the company’s shares on Friday after it revealed the receipt of a takeover approach.

According to the release, the company has received a confidential, non-binding and indicative proposal from Bain Capital to acquire it by way of a scheme of arrangement.

Bain Capital has tabled a $3.00 cash per share offer, which will be adjusted for any dividends paid or payable. This represents a 28% premium to the Estia Health share price at yesterday’s close.

Management advised that the indicative proposal is subject to a number of conditions. This includes the satisfactory completion of due diligence on an exclusive basis, the execution of a binding scheme implementation agreement, and an unanimous recommendation from the Estia Health board.

It will also be subject to approval from Bain Capital’s Investment Committee and the Foreign Investment Review Board.

Bain Capital appears to be serious about the offer. While it has not yet been confirmed, there was a significant purchase of shares at the market close on Thursday.

For example, yesterday’s trading volume saw over 12 million shares change hands. Whereas the day before just 170,000 shares were traded. Given the timing, it seems quite likely that this was Bain.

What now?

Estia Health has advised that together with its financial and legal advisers, it is considering the indicative proposal to assess whether it is in the best interests of shareholders.

It has also warned that there is no certainty that the indicative proposal will result in a binding offer or that any transaction will eventuate. As a result, shareholders do not need to take any action in relation to the proposal.

The company intends to keep the market informed in accordance with its continuous disclosure obligations.

The Estia Health share price is now up 20% over the last 12 months.

The post Estia Health share price jumps 21% on takeover approach appeared first on The Motley Fool Australia.

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More reading

• I think value investors would love to buy these 2 cheap ASX shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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I’m feeling optimistic about the valuations of some S&P/ASX 200 Index (ASX: XJO) shares. The lower the share prices go, the more attractive a good business looks.

It’s certainly true that the outlook doesn’t look as rosy as it did a year ago. Interest rates are much higher. Prices are now a lot higher after inflation. Things are uncertain, but I think that’s when the best opportunities are found.

I like the look of businesses that have been growing their operations over the long term, with further long-term growth planned. These are two of the ASX 200 shares I’m bullish about.

Cleanaway Waste Management Ltd (ASX: CWY)

Cleanaway describes itself as Australia’s “leading total waste management, industrial and environmental services company”. It has the “largest waste, recycling and liquids collections fleets on the road”, with a network of recycling facilities, transfer stations, engineered landfills, liquids treatment plants and refineries.

Since 21 April 2022, the Cleanaway share price has fallen around 25%, making it much cheaper. It has been hurt by a number of impacts including floods, higher costs and so on. But, I don’t think the negative environment is going to last forever.

Over the rest of FY23, the business is expecting underlying growth and ongoing execution of its 2030 initiatives. It’s expecting margins are going to recover in the second half of FY23, with an improvement in labour availability and efficiency. It’s expecting earnings before interest and tax (EBIT) to be around $300 million.

I think Cleanaway’s earnings can grow in the long term as the Australian population increases and more of a household’s waste is recycled.

Commsec numbers suggest that the FY24 earnings per share (EPS) could be 9 cents and in FY25 it could be 10.6 cents. This means the Cleanaway share price could be valued at 23 times FY25’s estimated earnings.

Premier Investments Limited (ASX: PMV)

Premier Investments is an ASX 200 retail share that owns a number of brands including Smiggle, Peter Alexander, Dotti, Just Jeans, Jay Jays and Portmans. It also has investments in Breville Group Ltd (ASX: BRG) and Myer Holdings Ltd (ASX: MYR).

The Premier Investments share price has fallen over 10% since 9 March 2023, despite the company’s positive updates. It recently said that Premier’s global retail sales for the first 17 weeks of the FY23 first half were up 23.6%. That’s impressive growth in my opinion.

It’s doing a great job of growing the Smiggle business, which sells children’s items like bags, stationery and so on with branding on them from the AFL, Harry Potter and Disney. The return to school has been a very helpful boost for the business.

Over the long term, the business is looking to grow its online sales, which are typically more profitable than what is sold in-store.

The ASX 200 share has been steadily increasing its ownership of Myer, which is interesting considering the long-term commentary about the demise of department stores. However, Myer has really turned things around – the Myer profit is soaring and the Myer share price is up around 70% in the last year.

I think that the potential of its global sales to increase (through names like Smiggle and Breville) gives it plenty of growth potential.

The post I’m bullish about these 2 beaten-up ASX 200 shares and I’ll tell you why appeared first on The Motley Fool Australia.

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More reading

• The one ASX share we’re holding onto for dear life: experts
• 5 ASX 200 shares that inflation can’t touch: expert
• How I’d aim to replace an entire salary with passive income from ASX dividend shares
• For $750 in monthly passive income, buy 8,572 shares of this ASX 200 stock

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Premier Investments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Fortescue Metals Group Ltd (ASX: FMG) share price is up 0.9% in Friday morning trade.

The S&P/ASX 200 Index (ASX: XJO) iron ore stock closed yesterday at $20.43. Shares are currently trading for $20.51 apiece.

For some context, the S&P/ASX 200 Resource Index (ASX: XJR) is down 0.03% at this same time.

What’s happening on the green iron front?

The Fortescue share price is marching higher amid news that the ASX 200 miner’s green arm, Fortescue Future Industries (FFI), has made a big step forward in producing ‘green iron’.

Some 6% of global carbon emissions are estimated to come from the conversion of iron ore into iron using traditional methods reliant on coal. Newer technologies are also trialling the use of hydrogen.

But the novel process developed by a team of FFI scientists at a pilot plant in Western Australia just turned iron ore into iron (or ‘green iron’ if you prefer)

As The Australian Financial Review reports, the still-veiled process is electrochemical.

Research breakthrough

Last month, Fortescue CEO Andrew Forrest alluded to the work being carried out by the FFI research team, calling it a “major breakthrough”.

Forrest said, “It uses a membrane”. As for Fortescue’s competitors, he added, “They’re going to have to come and talk to us if they want to borrow the membrane.”

However, FFI’s scientists said the successful test production of green iron was more about the 100 different innovations they’d developed and put together than the membrane.

“Essentially, it is all bespoke. You couldn’t go to Bunnings and buy part x, y, z because this process didn’t exist,” an FFI scientist said.

Of course, FFI’s test production of 150 kilograms is a far cry from producing emissions-free iron on a commercial scale.

“150 kilograms is better than it being a science project, but it’s not scale … so early days. It’s still going to take a lot of work to scale it, but this is part of our journey,” FFI CEO Mark Hutchinson said.

What could it mean?

Should that journey prove successful and commercially viable, it could have a big impact on keeping the lid on global warming. Future success could also offer some heady tailwinds for the Fortescue share price.

According to Hutchinson (quoted by the AFR), the Pilbara situated pilot plant would be the ideal place to make it all happen:

When you start to scale it to say 100,000 tonnes, there is an enormous amount of renewable energy you need to do it.

If there’s anywhere you could do it, it is the Pilbara because you have the opportunity to build massive scale renewable energy that could convert iron ore to iron, and then you basically sell the decarbonised chips to China.

Fortescue share price snapshot

As you can see in the chart below, the Fortescue share price has had a good run over the past 12 months, up 9%.

The post Fortescue share price marching higher amid green iron ‘major breakthrough’ appeared first on The Motley Fool Australia.

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More reading

• Why did the Fortescue share price slide today?
• How big will the Fortescue dividend be in 2024?
• Guess which ASX All Ords mining share Fortescue’s Twiggy Forrest is eyeing off for $760m
• Is the Fortescue share price a buy at $21?
• How to generate $10,000 of passive income from Fortescue shares

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Today is a big day for Pilbara Minerals Ltd (ASX: PLS) shareholders.

That’s because on Friday, the lithium giant will be rewarding them with its maiden dividend.

The Pilbara Minerals dividend

Late last year, the company unveiled its capital management framework which revealed that it now aims to pay out 20% to 30% of its free cash flow to shareholders.

Management believes that this is a nice balance and leaves it with enough free cash flow to maintain safe and reliable operations, as well as support growth and productivity initiatives.

This ultimately led to Pilbara Minerals declaring its maiden dividend last month when it released its half-year results.

The company’s board elected to reward its shareholders with an 11 cents per share fully franked interim dividend. In line with its capital management framework, this represents a 30% free cash flow payout ratio. It is also the equivalent of a $329.8 million return.

After going ex-dividend at the start of this month, this dividend will be hitting the bank accounts of eligible shareholders at some point today.

What’s the yield on this dividend?

Based on the current Pilbara Minerals share price of $3.50, this 11 cents per share dividend represents a very attractive 3.15% fully franked yield.

And let’s not forget that there’s likely to be a final dividend that follows later this year, stretching the yield further.

Goldman Sachs, for example, is forecasting a fully franked full-year dividend of 25 cents per share. This will mean a 14 cents per share final dividend and a full-year yield of 7.15%.

It is also worth noting that Goldman sees plenty of upside in the Pilbara Minerals share price. Although it only has a neutral rating, its price target of $4.90 is 40% higher than current levels.

The post The first-ever Pilbara Minerals dividend is being paid today. Here’s what to expect appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• Buy Pilbara Minerals and this exciting ASX growth share: analysts
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Why is the Pilbara Minerals share price sliding today?
• Investing in ASX 200 lithium shares? You’ll want to read this

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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All of us want our stock picking to produce superior returns to the S&P/ASX 200 Index (ASX: XJO). If this wasn’t the objective, then an index-based exchange-traded fund (ETF) would be all we’d need in an investment portfolio.

Over the past 20 years, the Australian benchmark has delivered an 8.1% per annum return. There’s certainly no shame in being satisfied with such a performance. It still blows the socks off a savings account and pips the hottest rate of inflation we’ve witnessed in more than 30 years.

However, if you’re like me and have an insatiable appetite for finding the best companies that money can invest in, I believe there are a few investing parables worth inscribing on your mind.

There’s a lot of information out there in the world. Not all of it is worth listening to, while some of it bears repeating again and again. It is knowledge imparted by those far more experienced than I that can be instrumental in successfully building wealth.

So, here are three valuable lessons to help outperform the ASX index over the next decade (or more).

Simple and strong companies can survive ineptitude

The first lesson is one I was reminded of recently while listening to the annual shareholders’ meeting of a major London-based investment company known as Fundsmith.

While perhaps not as well-known as Warren Buffett, Fundsmith CEO and founder Terry Smith applies similar principles to investing and is a success in his own right.

During the meeting, Smith explained a mantra that his fund operates by, stating:

Always invest in businesses that can be run by an idiot, because sooner or later they all are.

It’s fairly self-explanatory. Companies often experience changes in leadership. To lessen the risk posed by careless management, pick businesses that are simple to run and have a strong foundation.

The original quote was shared by Buffett many years ago. Yet, the crux of the statement still rings true today and likely will remain so into the future.

You won’t beat the ASX index by overpaying

Generosity is praised in many aspects of life. Though, gratuity won’t do you any favours when attempting to outperform the benchmark.

In a 2012 fund manager letter, Peter Kinney of Kinsale Capital Management shared his own investment philosophy. One of the cornerstone tenets described was the notion of never overpaying for a company. He called it ‘the margin of safety’.

The price I pay for a company is one of the few things I can control as a minority shareholder.

Peter Kinney, portfolio manager Kinsale Compass Fund

In true value-investing fashion, Kinney wrote that he required at least a 50% discount on what he believed was the company’s intrinsic value. Doing so removed the need for extensive diversification as a risk management strategy.

How’d it work out for Kinney? Well, three out of the fund’s top five holdings at that time (11 years ago) were Microsoft Corp (NASDAQ: MSFT), Sartorius Stedim Biotech SA (EPA: DIM), and Nakanishi Inc (TYO: 7716).

Safe to say, those were some ASX index-beating investments…

A key trait of a serial compounder

So, you’ve spotted a company that is well-established, simple, and trading at a considerable discount — surely that is enough. Well, not quite… don’t forget to check for pricing power.

It wouldn’t be a summary of investing lessons without a Buffett quote. As the Oracle of Omaha has said before:

The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.

In other words, to beat the ASX index, you want companies that hold such a strong customer attraction that price rises don’t put a dent in demand. This pricing power can take shape as a monopoly, strong brand, technical excellence, patented technology, etc.

If you want to find ASX shares with pricing power, look for companies that have been able to sustain growth through difficult economic periods.

The post 3 timeless lessons for beating the ASX index over the next decade appeared first on The Motley Fool Australia.

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More reading

• Why is the Weebit Nano share price sinking 12% today?
• Medibank share price slumps as tech boss announces departure
• Block share price crashes 15% after scathing short seller attack
• Looking to bag the bolstered Soul Patts dividend? Here’s what you need to know
• Dividend yields over 10%! Cheap ASX shares I’d buy for passive income

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Microsoft. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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