Reflections on Investing

Professor and Nobel Prize winner Eugene Fama put forth the efficient market hypothesis and based on that concept Warren Buffet suggested that holding a passive investment in the S&P 500 was the best advice for most investors. If the market were efficient and if passive investing was best for everyone, how can that be reconciled with the performance of Jim Simons' Renaissance Technologies Medallion fund.

When attempting to explain movements in stock prices the media often overlook the key facts that for every buyer there is a seller and every outstanding share must be held continuously.

The decade ending in 2023 was a great one for common stocks. Is the next decade likely to be as good? We provide an analysis using Damodaran's equity risk premium (ERP) and a framework developed by Jordan Brooks of AQR.

Real Interest Rates have an immense impact on the stock market as well as the bond market. Nonetheless, they are widely misunderstood.

In August of 2020 Apple issued a 40 year, 2.55% bond, two years later that bond is down nearly 40%. Apple's stock on the other hand is up over 50% in that same period. Why is that and what does it imply?

In August of 2020 Apple issued a 40 year, 2.55% bond, two years later that bond is down nearly 40%. Apple's stock on the other hand is up over 50% in that same period. Why is that and what does it imply?

Is a large daily drop in the market a buying opportunity? We used 60 years of daily data to see what happens after the market drops.

One of the most difficult problems for fundamental value investors is reconcliling value and momentum.

Presently just five US tech companies account for nearly 25% of the S&P 500 market cap. We discuss resurgence of big US tech and what it means for investors.

Prof. Bradford Cornell explains how fundamental valuation analysis can potentially uncover market inefficiencies. As an example, Prof. Cornell revisits our publication "Valuing the Automotive Business" from November 2021.

During the first quarter the story of both the fixed income and stock market revolved around the ongoing evolution of the yield curve.

When interest rates were near zero it was easy for companies to borrow and for investors to overlook debt.  But as interest rates increase, the amount of debt held by a business can become a significant refinancing risk for the company and investment risk for investors.

How can an option trade make 4000% in one day?  Tesla stock has been highly volatile and one of the drivers of this volatility is the unusually large volume of options trading.  Are large proportion of Tesla option contracts are traded on the day of expiration (zero DTE) and just out of the money.  This allows speculators maximum leverage and the small possibility of a significant profit.

While 2020/2021 were great years for our High Fliers, in 2022 the party ended and many of those companies like Peloton, Wayfair and Carvana came crashing down.  In the first month of 2023 however we are seeing signs that the worst may be over for the High Fliers.  For many of these companies January of 2023 was better than any month in 20' or 21'.  Is the worst over for the High Fliers?  Will 2023 be the start of there return to 2021 highs?

As 2022 came to en end, investors were no longer willing to pay sky-high prices for the most speculative assets. Valuations came to the fore once again.

We revisit "Valuing The Automotive Industry", our in depth report from last year.

In October of 2021 we reviewed the Howard Marks Checklist from Mr. Marks' book "Mastering the Market Cycle."  Since then conditions in the market have changed dramatically so we felt it was time to revisit that Mr. Marks' checklist.

The market's worst day of 2022 was September 13th when the Bureau of Labor's Consumer Price Index came in higher then expected.  A month later the next CPI release was a similar surprise however the market's reaction to that news was much different.  Former Goldman Sachs CEO Lloyd Blankfein remarked:  "This is one of those trading days where if you really had the news in advance, you REALLY would have lost a lot of money."

We explain the approach to valuing the S&P 500 developed by NYU Professor Aswath Damodaran, a co-author with our senior advisor Professor Bradford Cornell, and explain its relevance to current market conditions.

There is an inverse relationship between current investment performance and expected future performance. Understanding why is a key to maximizing long-run risk adjusted returns.

Building off our previous episode, we dig into the relationship between current price ratios, future expected earnings growth, and future stock market returns. It turns out there are important practical implications for investment management.

Finance theory in recent years has stressed the importance of changes in the discount rate for explaining movements in stock prices. In this video, we describe how this works using data provided by Prof. Aswath Damodaran.

As Larry Summers has stressed the real interest is an important indicator of the impact of Federal Reserve policy. In this episode we take a look at real interest rates through history.

Relative price changes, changes in the price of one good or service relative to others, are often confused with inflation but are fundamentally different. This difference can lead to a misunderstanding of the causes of inflation. In this video, we explain the difference and what it implies for policies to control inflation.

The Shiller CAPE Ratio is often referenced yet at times not fully understood. In this latest installment, Prof. Bradford Cornell starts at the source and breaks down this popular metric in detail.

From the pandemic lows of March 2020 to the end of 2021, stocks had an incredible run.  Earnings were up but so too were P/E ratios.  As the market climbed, many warned that valuations had become unjustifiably high.  With the S&P 500 down nearly 20% , P/E ratios have returned to their historic average leaving many investors wondering, is the worst behind us?  Before taking that leap take, look at our latest video on what the drop in P/E ratios means for the market.

There has been an explosion of interest in ESG investing, in part because many investors believe it leads to superior investment returns. Unfortunately, that belief does not stand up to careful scrutiny as we explain in this latest episode.

Elon Musk recently proposed a buyout of Twitter at 54.20 per share.  Twitter stock traded over 50 following the news but in recent weeks the stock has dwindled.  What can we infer from Twitter's stock price about the possibility of Musk's completing his acquisition of Twitter?

Recent times have been dreadful for investors especially for holders of growth and tech stocks.  Many are waiting for signs of an upturn. Do a few big up days mean the carnage is over?

Growth in earnings doesn't necessarily equate to growth in a stock's price.  A company's growth must meet or exceed the expectations of its investors to increase the stock price.  When they fall short of these lofty expectations the results generally spell trouble for shareholders.

Until recently fixed income has offered high risk and low return.  It seems like things are beginning to change. We take another look.

The market's incredible performance post Covid was driven largely by growth and tech.  Some of these companies were up 300, 400 even 700 perecent, companies such as Wayfair, Peloton, Zoom and Cathie Wood's ARK Invest ETF's, most notably ARKK.  Unfortunately for ARK and many other tech investors 2022 hasn't been kind and these "High Fliers" have returned to earth.

We've had a lot of volatility in the market recently.  What exactly is volatility and how is it measured?

For many investors options are associated with high leverage and high risk. However, options can be used to manage and reduce risk.

The Price to Earnings ratio is one of the most frequently figures for comparing valuation.  We explore the relationship between P/E, investor expectations and sentiment.

Volatility in the market is up once again but what does that mean for your investments?

We discuss how the book value, forecast value and speculative value contribute to the market price of a stock.

How does a company like Tesla create so much value compared to competitors like Ford and General Motors?  Is Tesla doing more with less?  We take a closer look at the relationship between a company's enterprise value and its invested capital.

Tesla has become just the sixth company to reach a market cap of one trillion, joining tech giants Apple, Google, Microsoft, Amazon and Facebook.  We compare each of these companies at the 500 billion and one trillion dollar level.

The market is cyclical, but what part of the cycle are we in?  To better understand where we are in the market cycle we review a checklist from Oak Tree Capital founder Howard Marks.

Since the outbreak of Covid 19 a lot of things have changed.  With many new retail traders and interest in the stock market, has investing changed?

Do investment manager track records matter?  It would be logical to assume that past record of success would be a good indication of future success but that isn't often the case.

Do investment manager track records matter?  It would be logical to assume that past record of success would be a good indication of future success but that isn't often the case.

How does investor demand influence stock prices?

What is the Fed's influence the on the stock market?  What does Fed money and lower interest rates mean for investors?

FANG stocks, aka Facebook, Apple, Amazon, Netflix, Google.  Can investors have bond level risk while earning tech stock returns?

A detailed analysis of what could be the most important security for investors, the Ten Year Treasury Bond.

Leverage is great in a bull market but what happens to speculators when the party stops?  We examine the pitfalls of investors using leverage.

Prof Cornell discusess the old and simple "Law of One Price" and it's continued relevance in today's market environment.

Prof Cornell discusses three "flavors" of inflation, 1) Measured Inflation, 2) Expected Inflation, and 3)Unexpected Inflation.

Prof Cornell sheds light on a crucial but often misunderstood metric, inflation.

Prof Cornell explains how investors can take advantage of tax timing by hedging gains and realizing losses via options.

With the stock market surging in the last year what can investors expect?  We examine the role of investor expectations and the risk premium.

Prof Bradford Cornell uses the key investing equation to help analyze the level of the overall stock market.

Prof. Bradford Cornell uses the key investing equation to help analyze the level of the overall stock market.

Drawing upon the key investing equation presented in episode 2, Prof. Bradford Cornell highlights some of the risks to be aware when investing in Bitcoin and other cryptocurrencies.

Professor Bradford Cornell walks through one of the most important equations in all of investing in order to help you better understand your investments and what to expect of the market.