#63 Reflections on Investing : Are Investors Creating Wealth or Transferring It?
The ultimate source of wealth from financial investments comes from the transfer of funds to entities that invest in the production of real goods and services.
The Implied Equity Risk Premium and Stock Market Bubbles
The implied equity risk premium (IERP) and theories of stock market bubbles both offer explanations for the current elevated level of stock prices, but they are strange bedfellows. Here we explore the relation between the two, starting with the implied…
#62 Reflections on Investing : Government Debt and Investing
As Herb Stein “if something cannot go on forever, it will stop”. The current growth of government debt is unsustainable. How will it stop? And what does that mean for investors? Hello, and welcome back to *Reflections on Investing with…
#61 Reflections on Investing : Stocks and Wealth Creation
A majority of stocks destroy wealth. In fact, most all of the wealth creation from stocks is attributable to only a handful companies. Today, we’re going to talk about something that is particularly important to investors: corporate value creation. Ultimately,…
#60 Reflections on Investing : Cornell/Damodaran – The Equity Risk Premium
For more than four decades both Prof. Aswath Damodaran and Prof. Bradford Cornell have stressed the importance of the equity risk premium (ERP) for evaluating the stock market. This video dives into the calculations to explain why understanding the role…
Investor Memo Q3 2024: Walking the Tightrope
Stock Price Performance in ReviewWe begin our Q3 2024 memo with a look back over the last ten years. The chart below plots both the standard S&P 500 index, which is value-weighted, and the equal weighted S&P 500 index over…
#59 Reflections on Investing : From Earnings to Prices – P/E Mulitples
The combination of P/E multiples and earnings determines stock prices – its basic math. In our last episode of Reflections on Investing we looked at earnings, now we add in the role of the multiple. Hello! Welcome back to Reflections on…
#58 Reflections on Investing : Earnings, the Engine of the Stock Market
The ultimate source of value for common stocks is the earnings of corporations. In the last four and a half years the S&P 500 has risen 124%. How is that increase related to earnings and what does it imply for…
Tesla’s Valuation Fountain of Youth
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,…
Investor Memo Q2 2024: How Long Can This Go On?
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…