Dear friends,
The Seven Wonders of the ancient world were monuments of legendary status that would inspire awe for centuries, some of them surviving until this day. The Great Pyramid of Giza, the Colossus of Rhodes, the Lighthouse of Alexandria, the Mausoleum at Halicarnassus, the Statue of Zeus at Olympia, the Hanging Gardens of Babylon, and of course the Temple of Artemis at Ephesus (our favorite obviously!). But where is the eighth wonder and why is it important for us? Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it”.
The power of compound interest is unquestionable, so let’s have a look at how we measure it at Artemis and how it can help you generate amazing returns. As investors, when we are studying a particular investment, we should always measure it against our own risk criteria and against the external environment. For example, is a 4% return good or bad? Impossible to tell without some more information. For example, how much are the interest rates? If interest rates are 0.25% and stable (as it was the case the last few years), then 4% return is great. If interest rates are 3.5% and rising (as it is the case now), then 4% return is not that great. How do we measure then?
At Artemis Assets we use two main metrics to assess the potential of a property. The first one is Return-On-Investment (ROI) over a given period, depending on each investor’s horizon. The reason we use ROI is because it is a simple metric to understand profitability, and can be used for comparisons with alternative investments. At Artemis we select projects which achieve consistently ROIs close to 10% or more, so it is easy for investors to compare with other investments (stock market returns, dividends, bonds etc.).
The second metric that we use is Cash-On-Cash returns (COC). This is a metric more specific to Real Estate and is better used when comparing different properties. We like COC because it’s simple to calculate and to explain as well; how much cash is required vs. how much cash is returned. For example, let’s assume an investor has singled out two properties but can only buy one of them. How do they choose? One is more expensive but has a higher ROI, the other one is cheaper, easier to finance, but has a lower ROI and some refurbishment is required. We apply COC, side-by-side to ROI, as a metric to measure which one will give them the best bang for their buck, or as we say at Artemis how it will liberate their savings more effectively.
Lastly, as investors who are seeking passive income you should not forget to think about the return on the time you invest. Even if it’s not a measurable metric, our objective at Artemis is to raise this as high as possible for our clients; we do all the work and you make the returns.
Feel free to reach out to us with your investment objectives and suggestions to improve.
Until the next one!
