The S&P 500 is not likely to give 10% each year like it did over the previous 40 years. Here is an appraisal and a discussion on investing and how you need to know the possible situations prior to investing.
0:00 Investing
0:38 SP 500 Valuation
3:32 What If It Fails
3:54 Investing Ahead
S&P 500 DCA
S&P 500 Recession
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Really good you tell them! I think I warned you about a scammer a year ago and its great to dee you take it seriously
I am always of the mindset that any gain is just bonus. The main point on the road to stronger finances is saving regurarly.
If you invest 1000$ and it loses 10% you still have 900$ more than you would have had if you hadn’t saved in the first place.
absolutely!
“If you invest 1000$ and it loses 10%, you still have 900$ more than you would have had if you hadn’t saved” hmmmm but you still lost 100$. Regardless of whether you planned to save the 100$ in a bank, had it in stocks, used it to buy clothing or spend it on taxi, 100$ is 100$. That is the risk of investment.
@SlimJim JimSlim many people blow $100 or more on a night of over priced drinks. if you invest and lose money you still at the very least gain some experience. this experience can then lead to larger gains in the future. you gotta crack a couple eggs to make an omelette
@Tyler Healey yes but that’s exactly my point. Loosing 100$ yes I understand loosing it from a good investment was probably a better reason than splurging it on overpriced drinks but still, at the end of the day you lost money, it’s not like it was some kind of bonus. Part of investing is the realization there is a risk factor and it pushes you to be a smarter more diligent investor. It doesn’t really make sense to say “ok I didn’t loose money, I actually just didn’t gain money”……
Dividends aren’t the value of the S&P500. That would exclude Amazon, Berkshire, Tesla etc from adding any value. I do believe it’s overpriced because earning margins are probably near the peak and then revert to the mean, but just dividends is a flawed approach to valuation.
Hmm but you only get capital gain for growth stock like Amazon when you sell at a good price. Meaning for the duration of time you hold Amazon, 10 years, you aren’t getting anything at the moment. On the other hand, dividend pays periodically and if you have DRIP, that’s where it really impacts your growth over long period of time.
@SlimJim JimSlim If Amazon and Berkshire paid dividends then their capital gain growth would be smaller. Ignoring tax implications for simplicity, a business should use their earnings to do whatever provides the greatest % return for the shareholders out of paying down debt, reinvesting in the business, buybacks, dividends or making acquisitions. All of those things compound your wealth.
Dividends are great for the reason that the equity is now out of the business and they can’t make a mistake with it (you can though :P). DRIP essentially reinvests it back into the business like a buyback would.
Not to mention dividends aren’t the preferred way for many companies to distribute excess capital. You would need to include buybacks too. A better method would be to value the index on a free cash flow basis.
@Matthew Harris I prefer my portfolio to be 85% dividend payers.
For me to buy a stock that isn’t paying dividends, it must have good growth at a fair valuation (because I have no guarantee the profits will be reinvested better than I could reinvest my dividend.) There are companies out there with 0 growth and 0 dividends (practically useless ticker symbols for the minority shareholder.) There are companies with poor growth and 0 dividends, why would I want that when tons of slow growing stocks at least make a commitment to reward shareholders instead of spending their money on vanity projects that go nowhere.
I have BRK.B in my portfolio, I trust them to keep delivering good returns over time, but at some point even they will have to start paying a dividend. Nobody can grow forever and as a fund gets bigger the harder it is to reinvest at market beating returns. If they buy a 6 billion $ company now and it goes 2X, that will only increase the market cap by 1%. I think one day BRK will probably be worth trillions (yes, even without Buffett) but they’ll grow so big they’ll have no chance but to give investors a good return without dividends.
I don’t like Amazon, I think they were overpriced and still are.
@Toro Montana I agree with pretty much everything you’ve said, but that doesn’t mean you can exclude the entire value of the business of Amazon just because they don’t pay a dividend. It’s clearly one of the best businesses in the world, worth a lot even if repriced to “fair value”.
Even if the companies I’ve mentioned convert to using dividends as the primary vehicle to deliver value by the end of 10 years, using a terminal multiple of dividends values companies that aren’t paying dividends in 2032 as 0. I believe FCF would be a more accurate way of evaluating the S&P.
Thank you for the video. Sven, should not we take into consideration the share buybacks when we are talking about the SP 500 as nowadays it is more popular way to award the shareholders?
buybacks increase dividends per share
@Value Investing with Sven Carlin, Ph.D.right, but some companies does not pay dividends as it is less tax efficient. And such companies are taking more weight in the SP 500 in recent years. I was just wondering is it the best way to value the index or maybe eps or free cash flow could be better choice?
The day S&P 500 Index reaches its intrinsic value (normal or worst case), many new companies and sectors will rise from the ashes with growth potential, which might then dominate the top 10 positions of S&P 500.
I really wonder, which companies will be the top 10 in 2030.
Berkshire will own the planet. The S&P500 will be S&P2 (BRK A and B). Warren Buffet will lead the company as a brain in a jar. It’s going to the moon BUYBUYBUY. (This is not financial advice, I have no idea what I’m saying.)
Hi Sven,
As always thanks for the video! i ordered your book today, getting it in 2 weeks cant wait!
Can you please clarify why are you valuing based on dividends ? or if you already made a video about it link it so i can smash the like button there aswell 🙂
I think there will be a recession. Thank you sven 👍
Many in the US invest a large amount of our pretax earnings into tax deferred retirement accounts. The fortunate part of this is we forgo paying taxes on the initial income. This can be huge because we have more liquid to invest since we’re not losing 15% – 30% of our income to taxes. The bad part, however is the fact that we must buy an index or indexes as individual company purchases are not possible in these accounts – 401k / TSP / 403b.
What I learned after having investing as a learning-hobby for 1.5 years now, is that the simpler you make it, the better your returns will be. AKA: Keep buying, and keep holding, and wait x years and you’ll do well.
I remember Sven saying in the comments a while back that “If I only invested in index funds I’d still be poor” or something like that, which might be true! But for the average investor this index fund would probably yield the best returns. I therefore love that Sven goes into both active and passive investing.
absolutely! I would be poor, but I started with a small base. Someone making $2 million a year, better focus on his/her business!
Nice video! I like the the topic as it stirs a lot of emotions. As value investors, we do not like the SP500. As growth investors, we may or may not like the SP500. As index investors we like the SP500. One should figure out what type of investor one is and stick with the program. Switching from value, growth, and indexing is a recipe for 2-3% average returns.
Thanks for your insight on investing!
Thank you Sven, very nice video. the valuation calculation you have is built on earnings per share growth and market valuation when if comes to terminal value. this is great, however I think we are missing one aspect here: return on assets and return on equity. personally I use these filters to screen companies. firms tend to manipulate EPS growth by buying shares, using accounting to make financials look nicer and things of that sort… but ROA and ROE cannot be easily manipulated.
The way I look at it is that we don’t need 15 or 20% growth in EPS to make 15% return on our investment. in your table you look at 10-30 years down the road, and plug-in a growth rate which no company can confidently foresee for this long period.. for me, I hone in on return on incremental invested capital. I need my businesses to give me back 10% to 15% per year on each incremental dollar I invest in them.. that is the bar I need my companies to pass.
if a company’s EPS is growing gangbusters, but they are eating away capital in the process, this means they have a very narrow moat, EPS will slow down very fast once capital dries out or when competition comes in.
on the flip side, if a company doesn’t grow EPS fast, but they use very little capital to give healthy return, this will lead to strong return in the long run.
Can you make a video about these metrics and if they play a role in your investment decisions? thanks
Hi Sven, your perspective is very much appreciated as usual. Given you have been going through small caps, in particular the ones in the SP600 but this company is not in the index I would really like to know your view on INMD. The company numbers are very compelling.
Thanks Sven. Can you say something about why one would value the S&P 500 on a dividend basis when substantial parts (Berkshire Hathaway, Alphabet, Amazon) of it don’t pay a dividend and a lot that does (Apple, for example) prefer to return cash via other means?
I’m wondering about the same thing. Can you not do EPS if you take the SPY? And then calculate earnings growth vs pe given to the snp 500
Professor, excuse me for insisting, but maybe you forgot to talk about “passive value investing”? You had said that you would discuss the QVAL and IVAL ETFs in the next video about index investing. I believe that the portion of your audience that invests in the S&P 500 will be pleased to hear about ETFs that have a methodology so focused on concentratedly selecting value with quality. These ETFs select the 50 best quality companies out of the 100 cheapest in the Russell 1000 index. They’re certainly not as good as the stock picking performed by a talented expert like you, but will ETFs like this outperform the S&P 500 in the long run? If there is anyone who can answer, that someone is you, who is a reference in value investing on YouTube!
Thanks for your content. I subscribe to your program and it’s helpful.
Please do analysis on SRG and MU. MU is in portfolio of many value fund managers like Li Lu, Pabrai and Spier. Also SRG is held by Buffett, Berkshire provides the debt and Guy Spier and Matthew Peterson holds it. Pabrai has been in and out if it twice.
Someone once told me if you do some thing 8 hours a day by default your an expert . But my 8 hours a day is spent on another business ,not investing . How do you balance individual stock picking v index given time is more of a requirement for single stock picking ?
Hi Sven, I would love to see which investing books you recommend and if you could do a summary of some takeaways from them that would be awesome! Thanks for the videos!
The list of S&P500 changes by the performance of each constitute. Some drops and are substituted, like Tesla, I wasn’t favor for. I assume SP500 is made to reflect the World (U.S.) economy of good parts, perhaps we shouldn’t be too surprised the index is always overvalued should we?