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Skip to main content Enable accessibility for visually impaired Open the accessibility menu * Home * Dividend Investing * Dividend Calculator * Safety Net * Retirement Planning * 50 Retirement Quotes: Inspirational and Funny Retirement Sayings * Market Trends * Income Opportunities * Bond Investing * Extra Income * Options Trading * Biotech Stocks * Energy Stocks * Tools * Dividend Calculator * Stock Position Size Calculator * Retirement Readiness Calculator * Mutual Fund Calculator * Compound Interest Calculator * Financial Literacy * Best Finance Books * Financial Terms * About Us Your email is safe with us. View our privacy policy and newsletter FAQs. All investments carry risk and results are not guaranteed. An Oxford Club Publication Customer Service: oxfordclub.com/contact-us | 877.808.9795 | M - F, 8 a.m.-8 p.m. ET Search * Home * Dividend Investing * Dividend Calculator * Safety Net * Retirement Planning * 50 Retirement Quotes: Inspirational and Funny Retirement Sayings * Market Trends * Income Opportunities * Bond Investing * Extra Income * Options Trading * Biotech Stocks * Energy Stocks * Tools * Dividend Calculator * Stock Position Size Calculator * Retirement Readiness Calculator * Mutual Fund Calculator * Compound Interest Calculator * Financial Literacy * Best Finance Books * Financial Terms * About Us x Home Financial Literacy This “True” Market Indicator Leads to Huge Gains THIS “TRUE” MARKET INDICATOR LEADS TO HUGE GAINS written by Alpesh Patel Friday, May 20, 2022 Editor’s Note: You’re in for a treat today… Our friend Alpesh Patel could be one of the most famed investors to ever grace the pages of Wealthy Retirement. He started his own hedge fund… is a bestselling author and entrepreneur… and is a Dealmaker for the queen of England. He just launched a brand-new initiative in the U.S. We’ve nabbed you a sneak peek at the powerful strategy he’s used to wallop the market by 580% over the past five years. It’s a secret that’s usually been reserved for ultra-wealthy investors – until now. Check out Alpesh’s new project here. – Kyle Wehrle, Assistant Managing Editor -------------------------------------------------------------------------------- Let me share with you a unique indicator that could boost your chances of scoring some big gains. It’s one of my personal favorites. It’s a metric that’s not as well known as price-to-earnings (P/E) ratio or even discounted cash flow, but it’s behind the advice given by two of the world’s largest wealth management firms to their wealthiest clients. Deutsche Bank invented it. Goldman Sachs Private Wealth Management uses it extensively in its stock selection. Cash return on capital invested (CROCI) may not sound like an important cause of stock returns… But using this formula consistently leads to reliable 30% annual returns. I first learned about it at a lunch presentation at Goldman Sachs Private Wealth Management. I was seated next to then-Chairman Jim O’Neill when the company’s quantum division (cool name, eh?) made its presentation. My jaw dropped. I kept the slides (and still have them!). Now, not every stock with a good score will generate 30% returns… After all, a tailwind boosts returns, while a financial crisis evaporates them. And some sectors do better than others – like oil, mining, auto, capital goods, consumer staples, discretionary retail and tech. I’ve been using this formula since 2010, based on data from the preceding decade. Through bull and bear markets and corrections, it’s the secret sauce that takes a portfolio from good to great. As the so-called Robin Hood of financial advice (taking ideas from the rich and sharing them with the poor), I’d like to let you in on this powerful hedge fund secret… and show you why it leads to such astonishing returns. SHOW ME THE MONEY In the simplest terms, CROCI measures how much cash a company produces on the capital it has had invested in it. It’s a measure of efficiency. It’s harder to manipulate cash than it is to manipulate earnings or profits. So CROCI paints a truer picture. The higher the CROCI, the better. (In fact, I only invest in companies with a CROCI score of 10 or higher.) It’s almost obvious: Companies that produce more cash on the capital they have perform better. They produce more cash by generating more sales and having fewer expenses. For example, if you don’t need to spend lots of money on capital goods (e.g., airplanes), can use the same machinery for years, have fewer staff members and generate lots of sales (demand)… you get more cash. But of course, that is also too simple. High-return companies trade at a persistent and substantial premium… yet have significantly outperformed as their assets and cash flows have grown. Let me explain… The market is willing to pay a premium for companies with high cash growth. (After all, cash is king.) When we look at the trend of the average top 25% and the average bottom 25% of CROCI companies by measuring their gross cash invested, companies with low cash returns tend to generate slower growth, and – no surprise – companies with high cash returns tend to generate faster and more sustained growth. Research shows that while companies with high cash returns are relatively expensive, they outperform nevertheless. Yet most investors think such companies won’t continue growing and are too expensive. That’s simply not the case. This is a hugely important idea. A structurally well-positioned company should sustain outstanding earnings over multiple years. Assuming it does, the market will continue to value it at a premium. There is, therefore, an inherent “valuation opportunity” in owning long-term leaders over longer-term holding periods. TRIPLE-DIGIT GAINS That’s why, in just the past two years, I’ve achieved triple-digit gains from stocks like Etsy (Nasdaq: ETSY), Crocs (Nasdaq: CROX) and Best of the Best (LSE: BOTB). Each of these companies had a good CROCI score. Each was in the top 15% of all companies measured and ranked by CROCI. They also had good P/E ratios, good sales growth and consistent momentum. But by further narrowing down by CROCI, we were able to laser-focus on these companies in particular… and they soon became market winners. Etsy – the online marketplace for creators of handmade arts, crafts and other home goods – was able to generate lots of profits as its sales were boosted by lockdown buyers. Those cash sales translated to profits because the company churns out a lot of cash relative to the amount of capital it invests. It is an efficient maker of money. In other words, it is good at turning income into profits because its expenses are low. For Best of the Best – an online lifestyle competition platform – lockdown viewers started playing the types of games it features more often. But this wasn’t a gamble on consumer behavior. We knew that once sales increased, they would have an outsized impact on profits. That’s because the company had a high CROCI (again, that means it’s good at converting cash into profits). Crocs was a similar case. During the lockdown, people wanted comfort, and the company’s Instagram campaign boosted sales. We didn’t know the company would launch a campaign or how people would react to it, but we knew it had a great CROCI score. Once we saw sales come in, we knew they would exceed expectations because the company converts sales into profits more efficiently than companies with lower CROCI scores. It’s pretty simple… and highly effective. These are just a few of the countless wins I’ve uncovered thanks to using CROCI. By drilling down into what really moves a stock, you can use one of the biggest hedge fund secrets to achieve truly great returns. But even better, this is the strategy I use in my elite research service, GVI Investor. And right now, you have the opportunity to join us. See this tool in action and learn how you can become a subscriber right here. Happy hunting, Alpesh SHOULD YOU INVEST IN THIS DIVIDEND STOCK RIGHT NOW? There's not a single dividend stock I like more than the one I'm giving away for free today. It owns the bestselling drug in the world... and it has a pipeline of other blockbuster drugs that are expected to generate $35 billion in sales. Last year, this company's stellar drug sales allowed it to pay shareholders $8.8 billion in dividends. The best part? That dividend is increasing by 20% per year! Click here to get my No. 1 dividend stock as part of my FREE Ultimate Dividend Package. Discounted cash flow GET WEALTHY RETIREMENT IN YOUR EMAIL INBOX Get access to all of the retirement secrets and income strategies from our experts! By submitting your email address, you will receive a free subscription to the Wealthy Retirement e-letter, and offers from us and our affiliates that we think might interest you. You can unsubscribe at any time. Privacy Policy. 0 Facebook Twitter Google + Pinterest ALPESH PATEL previous post A TREMENDOUS BARGAIN FROM THE NATURAL GAS INDUSTRY next post LET ME HELP YOU REACH YOUR FINANCIAL GOALS RELATED POSTS HOW TO AVOID FINANCIAL SELF-SABOTAGE Friday, December 18, 2020 THE ONE SECRET ALL INVESTORS NEED TO KNOW Friday, September 25, 2020 WHAT’S MORE IMPORTANT… WEALTH OR INCOME? 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Saturday, June 26, 2021 GET WEALTHY RETIREMENT IN YOUR EMAIL INBOX Get access to all of the retirement secrets and income strategies from our experts! By submitting your email address, you will receive a free subscription to the Wealthy Retirement e-letter, and offers from us and our affiliates that we think might interest you. You can unsubscribe at any time. Privacy Policy. TOOLS * Dividend Calculator * Stock Position Size Calculator * Retirement Readiness Calculator * Mutual Fund Calculator * Compound Interest Calculator KEEP IN TOUCH Push Facebook Twitter Linkedin MARC’S MEDIA APPEARANCES Click Here to See Full List * Contact Us * FAQ * Disclaimer * Privacy Policy * Whitelist Us * Partner With Us * Do Not Sell My Info ©2022 Wealthy Retirement | 877.808.9795 | 443.353.4621 | 105 W Monument Street | Baltimore, MD 21201 × Thank you for subscribing to Wealthy Retirement. 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