Download PDF Aswath Damodaran writes about what he calls the corporate life cycle.[1] He illustrates the life cycle with the graphic as shown below. From a valuation perspective, Damodaran’s corporate life cycle can be broken down as follows. In the first part, Stage 1 and Stage 2, the company has no meaningful earnings and limited
The performance of the market was remarkable in the second quarter. Driven by the Magnificent 7 tech stocks, for which the total return was 16.5%, the total return for the S&P 500 was 4.3%. What was remarkable was not the gain per se, the returns were healthy but by no means unprecedented, but the valuation
A common refrain is that to get more return you have to bear more risk. But what exactly is risk? We revisit this important issue. As part of the work leading to his Noble Prize, William Sharpe noted that in equilibrium all investors should hold some combination of the risk-free asset and the market portfolio.
Download PDF With stock prices at near record highs relative to measures like earnings or cash flow, many leading analysts have predicted meager returns over the next decade. Some have even suggested the return on the S&P 500 could be negative over the upcoming decade. Others have raised the possibility of a short-term collapse of
The S&P 500 ended the year 2023 at 4,769. During December, several leading financial firms were asked for their forecasts for the year-end 2024. The results are shown below. The most optimistic forecasts were by Fundstrat (a well-known bullish firm), Oppenheimer, and Yardeni. Considering the strong returns during 2023, four major firms, including Morgan Stanley
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With stock prices at near record highs relative to measures like earnings or cash flow, many leading analysts have predicted meager returns over the next decade. Some have even suggested the return on the S&P 500 could be negative over the upcoming decade. Others have raised the possibility of a short-term collapse of 20% or more. For instance, famed investor Jeremy Grantham said, “As for the U.S. market in general, there has never been a sustained rally starting from a 34 Shiller P/E. The only bull markets that continued up from levels like this were the last 18 months in Japan until 1989, and the U.S. tech bubble of 1998 and 1999, and we know how those ended.” But still others have taken the contrary view that the high prices represent a new normal and do not portend meager returns ahead. To shed light on the dispute, we take a deep dive into the underlying data.A good place to start is with data from Prof. Robert Shiller’s website. His work on the CAPE (Cyclically Adjusted Price-to-Earnings Ratio) is fundamental. Exhibit 1 presents a scatter plot of the level of the CAPE against the S&P 500 real total return (annualized) in
