VIDEO: The Intersection of Asset Prices, Cash Flows and Returns

I came across an extremely relevant and appropriate quote recently, “Nothing so undermines your financial judgement as the sight of your neighbor getting rich.” – J.P. Morgan (h/t Jesse Felder)

It’s been a while since I’ve made a video, but, given the conversations I’ve been having as of late, it’s time.

How do you know if an asset is cheap, expensive or fairly priced? In this new presentation, I walk through valuations, how they’re calculated, what has made them so reliable for predicting future returns, and why we need to constantly remind ourselves of this principle when the temptation to chase performance in overpriced, poor quality assets grows strong.

Putting $6 Trillion “Stimulus” in Perspective

The most recent COVID relief bill was signed by President Biden yesterday. In one year’s time our government (two different administrations) has passed about $6 trillion worth of stimulus. We’re so used to “trillions” being thrown around I believe we’ve become numb to the mind-blowing magnitude of it all so I’ll try to put it in perspective:

  • $6,000,000,000,000 (that’s twelve zeros) divided by a population of 330 million is about $18,000 for every man, woman and child.
  • The average household is about 2.5 people (130 million households) so $6 trillion of stimulus is about $46,000 for every household on average. For our family of five, it’s about $90,000 (no, we didn’t get any of that).

Continue reading “Putting $6 Trillion “Stimulus” in Perspective”

S&P 500 “Line in the Sand” and Rotation Out of Growth Stocks?

It appears a line has been drawn in the sand at $3,900 on the S&P 500 as the widely-watched index has crossed that level several times over the last month (see chart below). Thus far, the S&P 500 has been directionless since the beginning of February.

Over the weekend, I assumed Senate passage of the $2 trillion “relief” bill, and likely passage in the House this week, would have been sufficient to thrust the S&P above 3,900. However, so far, even that has not provided enough fuel to support the next leg higher. Has the market already priced this in? A “buy the rumor, sell the news” dynamic? Continue reading “S&P 500 “Line in the Sand” and Rotation Out of Growth Stocks?”

Quiz – Knowledge Check

I’m posing this question as a fun little exercise to check investors’ basic understanding of risk / return dynamics.

What’s a “better” portfolio (assuming buy-and-hold) based on the return streams below, and why?

A. Portfolio A
B. Portfolio B
C. Neither: They’re equivalent