The monetary markets are pricing things really in a different way these days, we have actually stocks priced like rates are currently at no while bonds are priced like rates will remain around 5% or decrease simply a bit.
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Le respect avec lequel chacun s’engage les uns envers les autres est vraiment louable. C’est un spectacle rare dans le paysage en ligne d’aujourd’hui.😚
When you compare the S&P 500 from 1900 with today, it is a total different beast. Just look at the asset “heaviness” in the beginning of the century to today. The asset heavy companies in the past also had very different free cashflow margins then today. In a past video you mocked the anticipated earnings estimates from all the banks for the following years. So far your assumptions were not correct. I would like a more balanced way of interpreting data
I’d like a cheeseburger well done.
Those big tech companies are quickly becoming asset heavy with the AI mania. Chips and data centers aren’t cheap. The issue is can they monetize those investments as profitable as before? Or will they cannibalize their existing business.
Dangerous to bet on S&P at high valuations and high concentration. Better opportunities
At 30-40x earnings, growth must remain strong, margins must remain wide and multiples must remain high in order to get a return. That’s a lot of must’s: too many people are just trying to convince themselves that perpetually high multiples are normal and disregarding earnings yield. This has never ended well.
You are free to do anything you want with your money. You can buy SP500 and be happy. IMO index investing at this point of the market is too risky and doesn’t make much sense. BTW your comment sounds like “this time it’s different” and also like you are commanding Sven to make videos according to your preferences which doesn’t make sense – he’s doing free videos according to his beliefs which you can agree with or disagree 🙂
S and p500 only up because of nvda and other faang group
Trading ” as if a rate cut has already happened ” = future looking.
Yes, but that future is far from guaranteed.
You can have another pandemic, war, debt crisis, oil shock, inflation spike and all your “future looking” goes to trash and you are left holding overpriced asset(s).
Question, come to think of it, should the stock market yield be one over PE + Div Yield + Buybacks?
buybacks don’t create value, they move it from one box to another.
@essenceofsias Doesn’t matter. From an academic standpoint, it is a driver of returns, ceteris paribus, and one that stems from cash generating activities by the company being analyzed.
I agree with you, btw, I don’t like BBs, but again, doesn’t matter.
In fact, the yield of a given buyback is slightly higher than the %change.
Yield = ( Price 1 / price 0 ) – 1
Price = mkt cap / outstanding shares
Outstanding shares = OSS
Ceteris paribus
Yield = ( OSS 0 / OSS 1 ) – 1
OSS1 = OSS 0 * (1 – %BB)
Yield = 1 / (1 – %BB) – 1
Yield = %BB / (1 – %BB)
So a rational investor deciding between bonds vs stocks will be comparing Bond yields (or the risk free, for simplicity, assuming no credit risk) vs stock yields, which I guess can be written as
(1/PE) + DVDy + %BB/(1-%BB) + e
Being e the error term, which will look one way or another depending on whether you wanna use the rational makets hypothesis.
@@essenceofsias It creates value if the company is undervalued. It’s just a box to box move if the price is fair and it destroys value if it is overvalued as AAPL.
You will not see us in the next video, but we will see you in the next video!
:-))))
Sven, thanks for the video. Do you think it makes sense to pay attention to the free cash flow yield instead of dividend yield as the strongest companies in SPY are focusing on buybacks instead of the dividends?
@Sven, do you think there is any truth to the people who claim that the old 15 pe average for the market is not as relevant given the shift to more tech companies with higher gross margins and less capital intensive etc. so that it make more sense to have higher average pe for the market? Or is this just the usual “its different this time” justification for overvaluations of market and stocks.
Do only the tech companies have the higher PEs?
The current PE for machinery companies is on average 27 right now with no projected earnings growth this upcoming year, for instance.
Sven, macro is noise. You are a smart guy. Focus on the companies future cash flow and you will too, like me, beat the market
Understanding macro is important to gauge current market psychology. If everything is priced to perfection, that tells you that investors are exuberant. That translates directly into high PE ratios. It does not mean you stop looking for good stock buys, but you are competing with people that are exuberant. It is hard to find good buys.
The comfort is that we know we are somewhere near the top of a range. It does not mean we know when it is going to change, but we do know that when it changes (and it always changes) that investor psychology will most likely drop to the bottom of the range (which directly translates into a lower PE being paid for stocks overall).
It does not mean we stop looking for deals. It does mean that we should be positioning ourselves for this possibility of the macro environment changing, so (as Buffett said) when it starts raining money we have a bucket and not a thimble.
What up cuh!?
Good info. I agree the US markets are over-priced. It may be a good time to look overseas.
@Sven – please explain the calculation how P/E 27 becomes a long term yield of 3.3% if the interest rate is 2%. What is yield if interest rate is 4%?
100:27 gives you the earnings yield. Interest rates don’t impact the earnings yield, that is just compared to it.
Hi Sven thanks for the videos! Little bit off topic : What are your thought on TLT? When would it ever be a buy?
Old easy trading days ( 1980 -2022 ) is over , making money in the future will be for sure tougher.
Great video, I have a quick question. I am an aspiring trader, I am looking study some traders and earn off their expertise rather than investing myself and lose money emotionally. Whats your take on copy trading? Do people really make money? Just looking for some reassurance.
Thank you!
Just ”buy the dip” man. In the long term it will payoff. High interest rates usually mean lower stock prices, however investors should be cautious of the bull run, its best you connect with a well-qualified adviser to meet your growth goals and avoid blunder
Yes true, I have been in touch with a brokerage Advisor. With an initial starting reserve of $80k, my advisor chooses the entry and exit commands for my portfolio, which has grown to approximately $550k.
This is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? i’m in dire need of proper portfolio allocation
ANGELA LYNN SCHILLING’ is her name. She is regarded as a genius in her area and works for Empower Financial Services. She’s quite known in her field, look—her up.
Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her resume.
Could you analize Canadian Pacific Kansas City Limited?…big moat there!
Two ways you can tell someone has a passion for research. First is when their fingers are all taped up due to paper cuts, like Sven here. Other way is when they need 2 inch thick glasses because staring at numbers for 70 years burned their eyes out of their head, like Charlie Munger.
Sven the perma bear.
AI hype is messing things up but how many use cases are profitable for Gen AI? That’s a good question. If big cloud don’t see a ROI on the AI chip, eventually, they will stop hoarding chips. NVDA crashes and brings the market down.
I think we should stop using past centuries market averages as a reference for the current market valuations, since economy is very different compared to 1901-2000. SP500 may be overvalued but expecting it to return to (or take as a reference) a dividend yield of 4% is a bit exaggerated.
What do you think about Hugo Boss?
Companies are doing buybacks while executives are selling. The same executives who decide to do the buybacks. Not shady at all.