Why These Are Such Hard Times For Investors

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...

Company Information Releases And Stock Prices

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...

Investment Risk And Stock Prices

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...

What Do Auto Price Earnings Ratios Tell Us?

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...

What Are Bear Markets?

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...

Where Are All Tesla’s Competitors

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...

Bubble Stocks: That Was Fast!

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...

Bubble Stocks: What Goes Up Might Come Way Down

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...

Public Equity Investment Strategies

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...

Fundamental Investing Is Harrowing: Here’s Why

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). ...

Conceptual Foundations Of Investing

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...

Pay For Performance In Money Management

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...

An Eye On Measuring Profitability

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...

High Expectations Can Bring Big Risks

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...

Beware The 10-Year Real Interest Rate

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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