Tag Archives: Historical Valuations

On The Limits of Perception, The Power of Math, and Human Behavior

Here is the English version of my most recent article in Forbes Latvia. If you are heavily invested in technology stocks, you might want to pay particular attention…

I am going to tell you a story whose provenance I cannot ascertain, but that speaks to the limits of perception, the power of math, and human behavior.  

The one constant of this story is that there is a chessboard. Other key components are 1) a king or emperor, (2) a man, and (3) grains.  

Now at this point you might have guessed the story, but you will remember it the way you first heard it, and will most likely not know the alternative endings. For those of you who have no idea what I am talking about, here we go…  

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Big Picture Charts

Here is a link to Scott Grannis’s blog where he’s highlighted some interesting charts:
LINK: Big Picture Charts

The numbers are staggering.

One part that I would like you to pay particular attention to is not only long-term average equity returns, but long term-average equity returns after inflation.

If you do not put your money to work, inflation will gladly eat away at it bit by (not so little…) bit.

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Facebook – A Bargain In The Rearview Mirror

Here’s a link to an article from ABglobal.com that shows how exceeding expectations can actually make ‘expensive’ stocks seem very cheap in retrospect:

LINK: Growth Stars

This chart that illustrates the differential between Facebook’s earnings expectations and actual earnings is quite enlightening and goes to show the degree to which analysts can underestimate new business models:

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David Rosenberg on Yellen’s ‘Uncertainty’

In this link, eminent economist and market strategist David Rosenberg highlights many of the issues that are currently contributing to ‘uncertainty’ in world markets:

David Rosenberg on Yellen’s ‘Uncertainty’

For the sake of clarity, ‘uncertainty’ generally means ‘pessimism’ when used by economists. However, they should not be confused as one and the same thing.

Rosenberg lists off a number of topics that contribute to a sentiment of pessimism. Unfortunately, his argument is far too one-sided. He concludes his diatribe as follows:

So all this means lower for a lot longer — low growth, low inflation, and low interest rates — from an investment strategy standpoint, it is all about “Safety & Income at a Reasonable Price”, all over again.

Thank you Mr.Rosenberg. None of this is new news. And by the way, the valuation bubble on securities that are assumed to offer “Safety & Income at a Reasonable Price” continues to grow. Accommodative FED policy has not had the intended effect on investment, but what is eminently clear is that agile and inventive companies are very attractive to capital.

That is why Tesla trades at multiples that puts its established competitors to shame.

That is why Facebook is on pace to overtake the entire valuation of the US Telecom sector.

That is why Amazon in worth more than Walmart.

‘Uncertainty’, whether voiced by the head of the US FED or not, will always be in play, and its rewards have tended to favor those that err on the side of innovation.

Safety and income are very important components of our portfolio strategies, but not allowing for growth, can be a risky proposition. Cycles come and go, we would rather accept these revolutions that deny them.

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A Note From Chief Maverick

Here’s link to my mentor and uncle Mal Spooner’s most recent post. Mal has over thirty years experience managing investment portfolios, founded and ran an award winning mutual fund company and is now a professor to students that probably can’t believe their luck in landing a prof like him.

In this post, he cuts to the heart of the matter about equity valuations and oil prices. Having invested in and financed oil companies throughout his career, Mal possesses a fundamental understanding of the oil industry that goes far beyond the daily permutations of the price of oil. There is a massive difference between charting oil prices and having gone to visit countless drilling installations and understanding the realities of the oil business.

The same can be said for his analysis of equity markets. He focuses on the real implications of global dynamics on actual businesses and their ability to generate returns for their shareholders. In this post, he makes the simple, yet compelling argument that S&P 500 earnings are actually considerably undervalued given the current level of interest rates. Enjoy!

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A rant about historic valuation comparisons. The first of many links to “The Reformed Broker” Josh Brown.

I started reading Josh Brown’s “The Reformed Broker” blog a couple of years ago. I also attended Citywire Berlin in November 2015 where gave a fantastic presentation. In this article, he attacks the tendency of some analysts to hone in on certain market data without attempting a broader conceptualization of what was actually going on.

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