In the forty years that I have been studying and participating in investment markets, the current conditions are among the most challenging. That may sound odd - interest rates are low, credit spreads are tight, stock prices are at records, real estate has recovered from the great crash to [...]
I don’t often disagree with Warren Buffett, but his position on companies providing guidance was one example. In a previous post, I argued that the more information companies give investors, the more accurately they will price stocks, on average. Perhaps there will be instances where investors might over- or [...]
Academics and practitioners alike recognize that increase in the perceived risk of equity investing, and the associated increase in the risk premium, can cause stock prices to fall. Most of the measures of risk are abstract like the historical standard deviation of stock returns or the future implied volatility [...]
On October 24, 2018 Tesla announced its best quarter ever. Sales rose to $6.8 billion from $4 billion the previous quarter. Gross margin improved to 22.33% from 15.46% in the second quarter of 2018 and 15.05% in the third quarter of 2017. Most importantly, earnings per share turned positive [...]
With all the turmoil in the markets, I felt it was time to take a look back at the ten bubble stocks from my post after the close on October 3. The table below shows the performance between the close on October 3 and the close today (October 29). [...]
With stock prices down sharply last week the words “bear market” and “correction” have once again been bandied about. In response, I first offer the standard definition of both terms and then a warning. A “correction” is defined as a drop of 10% or more in major indexes like [...]
Service hell. Though it might be more hell for owners than for Tesla. Tesla reported a 3rd quarter profit ather the market closed today and the stock has sky-rocketed again. The company showed that it can produce the Model 3 in meaningful volume at margins of 20% (as long [...]
In numerous posts on this blog, I have argued that the stock of Tesla has been overvalued. That remains true, though less so in my opinion, today. I say less so because one thing I did not evaluate accurately when I began constructing valuation models for Tesla in early [...]
A worrisome fact is how little many Americans know about stock market returns and historical performance. That ignorance limits the extent to which they participate in the long-run benefits that stock ownership conveys and by so doing exacerbates the inequality of wealth. An article from the current (October 18, [...]
Critics of this blog point out that almost all the valuations we have posted here reach the same conclusion – the securities in question are overpriced. The most recent example is the ten bubble stocks. At Cornell Capital, we agree with the critics. Most every stock we evaluate, particularly [...]
Someone once said if you make a forecast and it turns out to be right, don’t let anyone forget it. In the last couple of weeks Cornell Capital Group issued two warnings. In Beware the Bonds of October, posted on September 22 we warned that bonds appeared even more [...]
Several months ago, Rob Arnott, Shane Sheppard and I wrote an article entitled, Yes, It’s a bubble. So what? In that piece, we argued that many stocks were approaching bubble levels, but warned that the market could go even higher. Well, now its higher so at Cornell Capital we [...]
At the Cornell Capital group we put investment strategies into three general buckets. The first bucket is easy – accept market efficiency as a working hypothesis and buy highly diversified index funds. Note that accepting market efficiency as a working hypothesis is not the same as concluding that the [...]
As usual, I find it helpful to work with an example. The example used here is Apple because it is a relatively easy company to value. On September 21, 2918, Prof. Aswath Damodaran posted on his website a valuation of Apple that included a full DCF model (available here). [...]
Our new book comes out next week. It will be on Amazon. It is targeted more to serious amatuer investors as opposed to professional money managers or finance scholars. We think it gives you the tools to understanding the foundations of modern investment analysis. In the meantime, we have [...]
On September 21, 2018, the Wall Street Journal ran an article entitled “Fund to Cut Pay for Market Laggards.” The articles described how Peter Kraus, the ex-CEO of successful investment research and money management firm, AllianceBernstein, was leaving to start a new firm, Aperture Investors. The paper reported that [...]
When analyzing a company’s financial performance there are three things that need to be disentangled: (1) the difference between book and market values, (2) the difference between tangible capital that appears on the balance sheet and internally generated intangibles that do not, and (3) the difference between assets in [...]
Assessing profitability lies at the core of valuation and investment analysis, but it is far from straightforward. The most widely reported measure is profitability is return on equity, or ROE. The definition of ROE is ROE = Net Income / Book Value of Equity. Get The Full Seth Klarman Series in [...]
The total market value of a company can be divided into two parts: the fraction of due to current and short-run foreseeable operations and everything else. Financial economists have used the term “growth options” to describe the everything else. Growth options are the new projects that a company will [...]
On Friday night at 8 pm, well after the market had closed, Mr. Musk disclosed that he was abandoning his effort to take Tesla private. For those who read the detailed article linked to the previous post on reverse engineering the price of Tesla, this should not have come [...]
Tesla attracted such attention with its back to back earnings announcement and the Musk tweet that we wrote a short research paper analyzing the two news releases. Get The Timeless Reading eBook in PDF Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it [...]
With regard to valuing companies, the 10-year real interest rate plays a key role. It is foundation on which discounts rates are built and the higher those discounts rates, the lower the value of a company's stock, everything else held constant. Ever since the financial crisis, the 10-year real [...]
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