Reflections on Investing

The P/E for automobile manufacturers is normally very low. Ford, GM and Toyota currently trade at 7 times earnings. Tesla’s P/E of 114 is unique in the auto industry. Elon Musk’s promises of future growth from humanoid robots and robotaxis have sustained Tesla’s high price but investors should be cautious as stock prices built on future growth expectations can drop just as quickly as they rise.

The perception of risk has a major impact on the level of market prices and helps to explain the increase in prices over the last 15 years.

As Herb Stein “if something cannot go on forever, it will stop”. The current growth of government debt is unsustainable. How will it stop? And what does that mean for investors?

A majority of stocks destroy wealth. In fact, most all of the wealth creation from stocks is attributable to only a handful companies.

The combination of P/E multiples and earnings determines stock prices – its basic math. In our last episode of Reflections on Investing we looked at earnings, now we add in the role of the multiple.

The ultimate source of value for common stocks is the earnings of corporations. In the last four and a half years the S&P 500 has risen 124%. How is that increase related to earnings and what does it imply for the future of the market?

A common refrain is that to get more return you have to bear more risk. But what exactly is risk? We revisit this important issue.

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 M...

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 p...

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 Fli...

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, yo...