Cornell Capital Group’s Economics Blog. Brad Cornell teaches financial economics at the California Institute of Technology.
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…
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…
A majority of stocks destroy wealth. In fact, most all of the wealth creation from stocks is attributable to only a handful companies. Today, we’re going to talk about something that is particularly important to investors: corporate value creation. Ultimately,…
For more than four decades both Prof. Aswath Damodaran and Prof. Bradford Cornell have stressed the importance of the equity risk premium (ERP) for evaluating the stock market. This video dives into the calculations to explain why understanding the role…
Stock Price Performance in ReviewWe begin our Q3 2024 memo with a look back over the last ten years. The chart below plots both the standard S&P 500 index, which is value-weighted, and the equal weighted S&P 500 index over…
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. Hello! Welcome back to Reflections on…
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…
Aswath Damodaran writes about what he calls the corporate life cycle.[1] He illustrates the life cycle with the graphic as shown below. From a valuation perspective, Damodaran’s corporate life cycle can be broken down as follows. In the first part,…
The performance of the market was remarkable in the second quarter. Driven by the Magnificent 7 tech stocks, for which the total return was 16.5%, the total return for the S&P 500 was 4.3%. What was remarkable was not the…
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. As part of the work leading to his Noble Prize, William Sharpe noted that in…