Tag: valuations

Posted on

State of the Market: “A Permanently High Plateau”?

A brilliant economist, Irving Fisher, is, unfortunately, best known for one of the worst stock predictions of all time.

On October 16, 1929 in a New York Times article Mr. Fisher was quoted, “Stock prices have reached what looks like a permanently high plateau…” after the Dow Jones Industrial Average increased six-fold over the preceding eight years during the Roaring Twenties.

Over the next month, the Dow lost almost half its value causing Mr. Fisher to go broke. The Dow ultimately went on to lose 89% of its value from its peak in late-1929 to its bottom in the summer of 1932. Continue reading “State of the Market: “A Permanently High Plateau”?”

Posted on

Price/Sales is Better Than Price/Earnings…for forecasting future returns

Executive Summary

  1. If we’re going to use valuation metrics to make important financial planning and investment decisions why wouldn’t we use the most reliable metrics at our disposal?
  2. The Price/Sales ratio has a much higher correlation to actual subsequent returns than Price/Earnings.
  3. Price/Sales, and other reliable metrics, indicate the U.S. stock market is more expensive than it’s ever been in history.

Continue reading “Price/Sales is Better Than Price/Earnings…for forecasting future returns”

Posted on

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.

Posted on

Huge Employment Report and Video Follow Up

This morning we learned that the November employment report was tremendous! U.S. companies added over 260,000 jobs, which far exceeded expectations. This pushed the employment rate back down to 3.5% matching the low from earlier this year, which is the lowest since 1969.

There were some concerns about the potential for this report because the ADP employment report from Wednesday was so poor. That ADP report indicated private sector job growth of just 67,000 compared to the 157,000 expected.

The large discrepancy between the BLS report we received this morning and the ADP report from a couple days ago is very strange. Perhaps the truth lies somewhere between the two, but for now, the market appears to be taking the government BLS report at face value as the S&P 500 is up over 1.0% on the day at the moment.

The employment-population ratio held steady at 61%. Construction job growth slowed to just 1,000. Speaking of construction jobs….

Over the last couple weeks I provided you with two videos. There have been a couple developments since I released those. Continue reading “Huge Employment Report and Video Follow Up”