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. Today, we’re going to talk about one of the most basic concepts of investing—risk. There’s overwhelming evidence that when it comes to a large part of their net worth,
Stock Price Performance in Review The year 2023 ended on a high note. During the year, the S&P 500 Index rose 24.2% to close the year at 4,769.83. The total return on the index, including dividends, was 26.3%. However, as of December 2023, analysts predicted a more sedate 2024. Exhibit 1 shows the average forecast for
Download PDF The implied equity risk premium (IERP) and theories of stock market bubbles both offer explanations for the current elevated level of stock prices, but they are strange bedfellows. Here we explore the relation between the two, starting with the implied equity risk premium. Estimates of the IERP depend on the model used and the
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? Hello, and welcome back to *Reflections on Investing with the Cornell Capital Group.* Today, we’re going to talk about government debt. Of course, this
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With stock prices at near record highs relative to measures like earnings or cash flow, many leading analysts have predicted meager returns over the next decade. Some have even suggested the return on the S&P 500 could be negative over the upcoming decade. Others have raised the possibility of a short-term collapse of 20% or more. For instance, famed investor Jeremy Grantham said, “As for the U.S. market in general, there has never been a sustained rally starting from a 34 Shiller P/E. The only bull markets that continued up from levels like this were the last 18 months in Japan until 1989, and the U.S. tech bubble of 1998 and 1999, and we know how those ended.” But still others have taken the contrary view that the high prices represent a new normal and do not portend meager returns ahead. To shed light on the dispute, we take a deep dive into the underlying data.A good place to start is with data from Prof. Robert Shiller’s website. His work on the CAPE (Cyclically Adjusted Price-to-Earnings Ratio) is fundamental. Exhibit 1 presents a scatter plot of the level of the CAPE against the S&P 500 real total return (annualized) in