Bubble Stocks 2.0

In Bubble, Bubble, Toil and Trouble, Rob Arnott, Shane Sheppard and I offered a real time definition of a bubble.  We stated, We define a bubble as having two characteristics. ...

Bubble, Bubble, Toil and Trouble

In April of 2018, Rob Arnott, Shane Sheppard and I published an article entitled, Yes, It’s a Bubble, So What?.  Given the turbulence of the intervening fifteen months, and to…

The Roots of Superior Investment Performance

It is easy to get caught up in the blizzard of data on stock returns and investment performance and lose sight of the fact that investing is ultimately about owning…

Tesla: The Slow Death of a Growth Story

Tesla’s significant drop, 35% year to date compared to the S&P up 14%, has investors looking for answers.  How this could have happened may best be explained by looking at…

Hedge Funds Should Hege

For those of you who have been following this blog, you know we have been wringing our hands about the level of the market, particularly the market for high flying…

Energy and Investing: An Update

In Energy and Investing, Cornell (2019), I stressed that a critical aspect of the transitions from fossil fuels to renewable sources of energy was the sheer size and scope of…

Tesla is Raising Capital: What Does it Tell Us About the Stock Price?

Tesla is raising capital and it tells us something about the way to the stock is priced.  To see how, we need to take a step back into the world…

The Buffet Market Indicator

Warren Buffett has commented on several occasions that one market indicator he tracks is the ratio of the aggregate value of the stock market to GDP.  Data from the Center…

Is the Market Obscenely Overvalued?

In his recent letter to investors, fund manager John Hussman stated, “This is an obscenely overvalued market.”  There are reasons to worry that he might be right.  The current market...

RADY Innovation in Finance Lecture Series

Cornell Capital Group LLC will be kicking off the RADY(UCSD) Innovation in Finance Lecture Series on Wednesday, April 10. Conceptual Foundations of InvestingDetails Wednesday, April 10 Rady School Executive Education...

Warren Buffet’s Contradictory Letter

At Cornell Capital we always look forward to Warren Buffett’s annual letters.  The biggest surprise to us this year was that Mr. Buffett apparently contradicts himself.  Start with his statement…

Energy and Investing: Assessing the Political Risk

            In an extensive report entitled, Energy and Investing, the Cornell Capital group examined the investment implications of what we referred to as the great transformation from reliance on fossil…

Energy and Investing : A Cornell Capital Report on Renewable Energy

The public debate regarding climate change rages daily in the popular press and in the halls of Washington. This report takes a different tack and focuses on the investment implications...

Buybacks, Executive Compensation and Trust

In his blog, Musing on Markets, my colleague, Aswath Damodaran makes an important point about the buyback controversy that reflects an even more important issue.[1]  First, with regard to buybacks,…

Upcoming Featured Publication – Energy and Investing :”The Great Transformation”

Human civilization faces a daunting problem – how to provide reliable energy to a growing world economy and a rising population that will surpass 10 billion before the end of…

How Fast Sentiment Can Change – Tesla

Throughout much of the last several years the Los Angeles Times has been enthusiastic about Tesla.  The paper enthused about the gigafactory, the Model 3, the powerwall and the solar…

Apple, Inflation and Valuation

In light of Mr. Cook’s revision of expected fourth quarter revenue for Apple, it is worth revisiting the question of whether the stock is overpriced.  To examine that question, I…

Efficient Markets?

The efficient market hypothesis holds that the market prices of securities accurately reflect the fundamental value of those securities.  This implies that if no new fundamental arrives, prices should remain…

Enough is Enough?

For over a year now, we have been banging the drum saying that equities, particularly the equities of high-flying tech companies like Netflix were overpriced.  Today we say, enough is…

Advisors say “Get Defensive”

From Charles Schwab to Goldman Sachs, analysts and investment advisors are warning investors to “get defensive.”  That may be good advice, but from a fundamental valuation standpoint it is a…

Why Fundamental Valuation Matters

First, a little humility.  When we posted our list of ten bubble stocks we were not predicting an imminent collapse.  (Though, in fact, a collapse has occurred.  The ten bubble…

The Impact of Growth Options and Intangible Assets

To expand on our thoughts about growth options and intangible assets, we have published a new in-depth piece on the subject. When attempting to gain insight into the valuation of...

Disappointment and Concern at the Los Angeles Auto Show

As readers of this blog know, we have consistently opined that at prices exceeding $350 Tesla is significantly overvalued.  Therefore, Cornell Capital has pursued an investment strategy of writing call…

Looking Back at Bitcoin

Benjamin Graham once said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”  That statement is a little hard…

Climate Change and the Stock Market

No, I am not going to say how climate change impacts the stock market or even more far out how the stock market may impact climate change.  The point here…

Fuel Costs Comparison: Tesla vs ICEs

Hidden within a previous post on “How Green is Your Tesla” was a discussion of fuel costs.  But with gas pricing falling, I thought fuel costs deserved another look.  Attached…

Explaining Stock Market Moves After the Fact

Whenever the market moves sharply, the media feel compelled to offer an explanation.  Sometimes this is reasonable.  For instance, a sudden increase in reported inflation is likely to be bad…

Bubble Stocks Latest Update

The group of ten is now done over 26% since our post.  Even Amazon is off 25%.  Roku is nearing the 50% level.  Tesla remains the sole outlier that is…

Tesla Competition in Germany

Apparently the German Minister of Economic Affairs reads our blog.  In a recent meeting with the leading German automakers, he said (here is the link: https://electrek.co/2018/11/19/electric-car-half-sexy-tesla-german-automakers/) “I really wonder when you, Mr….

Ranking on Growth Options

Related to our recent posts on the role of growth options, we though it would be interesting to rank US equities based on the percentage of market value attributable to…

Asset Sales and Corporate Restructuring

You often hear that as part of a restructuring to improve its financial position, a company plans to sell assets.  GE is a focal point of such discussion currently and…

ROKU : Growth Options and Bubble Stocks

ROKU, a member or our “Top Ten Bubble Stocks (that could drop 50% or more)” list that we published in early October, reported earnings yesterday. Despite beating both top and…

Options and Market Declines

            At Cornell-Capital we write a lot of options.  In some cases, it is part of a hedging strategy in which we own the underlying stock.  But it many cases,…

New Location for Brad Cornell’s Economics Blog

The fact that you have been redirected here is not a mistake. Going forward all posts will be part of Cornell Capital Group’s Economics blog (all previous posts and comments…

Company Information Releases and Stock Prices

            I don’t often disagree with Warren Buffet, but his position on companies providing guidance was one example.  In a previous post, I argued that the…

Investment Risk and Stock Prices

            Academics and practitioners alike recognize that increase in the perceived risk of equity investing, and the associated increase in the risk premium, can cause stock prices to fall.  Most…

Bubble Stocks Update

              With all the turmoil in the markets, I felt it was time to take a look back at the ten bubble stocks from my post after the close…

What Do Auto Price Earnings Ratios Tell Us?

            On October 24, 2018 Tesla announced its best quarter ever.  Sales rose to $6.8 billion from $4 billion the previous quarter.  Gross margin improved to 22.33% from 15.46% in…

What are Bear Markets?

            With stock prices down sharply last week the words “bear market” and “correction” have once again been bandied about.  In response, I first offer the standard definition of both…

Production Hell, Delivery Hell, What the Hell is next for Tesla?

Service hell.  Though it might be more hell for owners than for Tesla.  Tesla reported a 3rd quarter profit ather the market closed today and the stock has sky-rocketed again. …

Where are all Tesla’s Competitors

              In numerous posts on this blog, I have argued that the stock of Tesla has been overvalued.  That remains true, though less so in my opinion, today.  I…

Looking for Value? Consider GM

              Critics of this blog point out that almost all the valuations we have posted here reach the same conclusion – the securities in question are overpriced.  The most…

What You Don’t Know About Stock Market Performance Can Hurt You

             A worrisome fact is how little many Americans know about stock market returns and historical performance.  That ignorance limits the extent to which they participate in the long-run benefits…

Bubble Stocks: That was Fast!

            Someone once said if you make a forecast and it turns out to be right, don’t let anyone forget it.  In the last couple…

ETFs Can Provide Useful Information about Market Behavior

            Exchange traded funds, or ETFs, are well-known as a useful tool for providing investors with a low-cost way to invest in a wide variety of…

How Green is Your Tesla: Update

Recently, my son and I updated our effort to compare the efficiency and “greeness” of a Tesla Model S and a standard, non-plugin Prius.  Our latest writeup follows along with…

Top Ten Bubble Stocks (Video)

Bubble stocks: What goes up might come way down

            Several months ago, Rob Arnott, Shane Sheppard and I wrote an article entitled, Yes, It’s a bubble.  So what?  In that piece, we argued that…

Ten Stocks that could Drop 50%

Several months ago, Rob Arnott, Shane Sheppard and I wrote an article entitled, Yes, It’s a bubble.  So what?  In that piece, we argued that many stocks were approaching bubble…

Public Equity Investment Strategies

            At the Cornell Capital group we put investment strategies into three general buckets.  The first bucket is easy – accept market efficiency as a working hypothesis and buy highly…

Fundamental Investing is Harrowing: Here’s Why

            As usual, I find it helpful to work with an example.  The example used here is Apple because it is a relatively easy company to value.  On September 21,…

Track Records and Investment Decisions

            In a previous post, I argued that “pay for performance” is not practical in the investment management business because most of the variation in performance over horizons of three…

An Eye on Profitability (Video)

An Eye on Profitability

Assessing profitability lies at the core of valuation and investment analysis, but it is far from straightforward. Assessing profitability lies at the core of valuation and investment analysis, but it...

Is the Market Smoking Weed?

            It only takes one counter example to disprove a mathematical theorem.  The same is true in finance.  This makes counter examples particularly useful for investors.  In previous posts, I…

Beware the Bonds of October

            When asked in a recent interview whether stocks were overpriced, Nobel Prize winning economist Robert Shiller replied that he thought so, but not in relation…

Pay for Performance in Money Management

            On September 21, 2018, the Wall Street Journal ran an article entitled “Fund to Cut Pay for Market Laggards.”  The articles described how Peter Kraus, the ex-CEO of successful…

Conceptual Foundations of Investing

      Our new book comes out next week.  It will be on Amazon.  It is targeted more to serious amatuer investors as opposed to professional money managers or…

Intangible Capital and Growth Options: The New Source of Value

            When analyzing a company’s financial performance there are three things that need to be disentangled: (1) the difference between book and market values, (2)…

Intangible Capital and Growth Options: The New Source of Value

            When analyzing a company’s financial performance there are three things that need to be disentangled: (1) the difference between book and market values, (2)...

An Eye on Measuring Profitability

           Assessing profitability lies at the core of valuation and investment analysis, but it is far from straightforward.  The most widely reported measure is profitability is return on equity, or…

High Expectations Bring Big Risks (Video)

High Expectations Can Bring Big Risks

            The total market value of a company can be divided into two parts: the fraction of due to current and short-run foreseeable operations and everything…

The Value Effect and Stationarity (Video)

The Value Effect and Stationarity

Empirical studies routinely find that value stocks, defined as those with high book values compared to market value, outperform growth stocks with high market values relative to book value.  Though...

Value Stock Investing and Non-stationarity

            Empirical studies routinely find that value stocks, defined as those with high book values compared to market value, outperform growth stocks with high market values relative to book value. …

Mr. Musk Made the Right Call to Abandon Going Private

        On Friday night at 8 pm, well after the market had closed, Mr. Musk disclosed that he was abandoning his effort to take Tesla private.  For…

Information and Stock Price Movements the Case of Tesla

       Tesla attracted such attention with its back to back earnings announcement and the Musk tweet that we wrote a short research paper analyzing the two news releases. …

Information Release and Stock Price Movements: The Tesla Earnings Announcement and the Musk Tweet

https://cornell-capital.com/wp-content/uploads/2018/08/An-Alternative-Hypothesis-to-Market-Efficiency.pdfhttps://cornell-capital.com/wp-content/uploads/2018/08/An-Alternative-Hypothesis-to-Market-Efficiency.pdf

Advice to CEOs – Particularly Elon Musk

      Often CEOs complain that volatility in stock prices, allegedly caused by investor focus on short-term performance, makes it difficult to manage their companies.  Put aside the fact that…

A Kudo for Elon Musk

       One thing you have to give Elon Musk credit for is that he creates news.  And as Hollywood publicists are fond of saying all publicity is good…

Beware the 10-year real interest rate

       With regard to valuing companies, the 10-year real interest rate plays a key role.  It is foundation on which discounts rates are built and the higher those…

Competition, Regulation and Valuation – The Impact

       In the last post, I talked generally about competition, regulation and valuation, but did not offer any data to illustrate.  The valuation data, shown below, are dramatic. …

Competition, Regulation and Valuation

       AT&T has a market capitalization of 196 billion.  Facebook book has a market capitalization more the 2.5 times greater.  Why the difference?  Both can be seen as…

Elon Musk and the Car Business

       Elon Musk deserves immense credit.  The time of the electric car had arrived but it needed a catalyst.  Mr. Musk provided it.  As the late David MacKay…

An Alternative Hypothesis to Market Efficiency

On repeated occasions, Eugene Fama has claimed that critics have failed to offer a complete alternative to the efficient market hypothesis (EMH). More specifically, in his Noble speech, Fama said,...

Yes. It’s a Bubble. So What?

With sky-high valuations in the US stock market, and what we believe is a tech bubble that has dangerous implications for other areas of the market, we suggest four actions...

How Low Can Tesla Go?

        Given my writings on Tesla, a common question I am asked is how low can the stock price go.  To answer the question, let me first…

Corporate Stakeholders and Corporate Finance – The Case of Tesla

      Way back in 1988, Alan Shapiro and I published a paper called “Corporate Stakeholders and Corporate Finance.”  The point of the paper was to highlight a manner…

The Tesla Meltdown

      If you have followed this blog for the last couple of years, you have heard me harp on how difficult it was to reconcile Tesla’s market price…

The Bubble Wars

            A war continues to rage amongst finance professionals regarding the commonality of bubbles.  The problem is that present value relation can be interpreted as an…

The Market Can Stay Irrational Longer Than You Can Stay Solvent

     This famous old Wall Street warning is worth bearing in mind as we explore the possibility of bubbles. Because there remains no theory that explains how a bubble…

Yes, It’s a Bubble, So What?

       A company is never so good or a situation so favorable that it cannot be overpriced.  In my view, that is our situation today.  The pricing of…

The VIX Collapse

     Last month I published an editorial in the Journal of Porfolio Management that turned out to be somewhat prescient.  It deals with the VIX index and the problem…

It was just a matter of time

      This is what makes investing so difficult.  On this blog, I have been wringing my hands for more than a year over what seemed like excessive stock…

Efficient Markets

      As a professor, I tend to be quite wedded to the idea of efficient markets that has played such a large role in academic research.  But every…

The Tax Bill

       First some full disclosure.  I am a Republican free market economist.  I believe in the importance of individual incentives and responsibilities.  I believe in limited government where…

OK, Bitcoin

      Ok, I am breaking down to write something about Bitcoin.  It seems that everyone I talk to has a question about it.  The problem is that virtually…

GE and Value Creation (Destruction)

      Perhaps the most common theme of this blog is that value creation comes from lean, well managed companies that have sufficient barriers to entry to be able…

Education and Social Media

      Becoming educated is not easy or natural for most people.  Were it like learning to walk, we would not need this immense social infrastructure of schools, teachers,…

Another Indicia of Excess

      Low real interest rates encourage investors to leverage their investments.  As long as prices are rising or stable, this leverage results in higher returns.  But if prices…

Bitcoin and the Fed

      At the outset let’s be clear on the relation between Bitcoin and blockchain technology.  Blockchain technology is one of the most important economic innovations in decades.  It…

Tesla Below 300 GE under 20

      It has been a long time coming but Tesla is finally starting to be valued like and automobile company – which it is.  That means it has…

Amazon and GE earnings

    For the third quarter of 2017 GE net income after tax was 1,836 million.  The quarter was universally assailed as a disaster for the company and the stock…

Making Sense of “Short-termism”

            Short-termism just won’t die.  Despite obvious counter examples like Amazon, Tesla and Netflix it clings to its long-term life.  But beyond the counter examples,…

The Market Forest Fire Analogy

      Fire fighters often complain about the downside of fire prevention.  By preventing small fires, the fuel for large ones continues to accumulate and dry out.  Then when…

2 + 2 = 7 In the Market

       Amazon trades at a P/E of 250.  Facebook is 40.  For Air BNB, Tesla and Uber the P/Es are undefined because they don’t have profits yet.  The…

Steve Ross’ Lament

     In a book published in 2005, the great financial economist Steve Ross lamented that the finance profession could not understand what moved the market.  By this he did…

A Crack in Apple’s Secrecy Wall

       One of the themes of this blog is that Apple succeeds in spite of their dedication to secrecy, not because of it.  The benefits provided by splashy…

Diversity at Google

            The brouhaha at Google regarding corporate “diversity” reminds me how confused I seem to be about this whole issue.  In a nutshell, there are…

What is the True Range of the Tesla Model 3?

      In December 2016, I published the results of tests I performed on my Tesla model S.  At that time, I wrote (the link is below), I charged…

If Apple Wants to Buy a Car Company

       There has been a lot of speculation about Apple buying Tesla.  While the mixture may be intriguing, Apple should bear in mind Warren Buffet’s warning that no…

Government and Climate Change

       In a previous post, I argued that private firms should not base decisions on their assessment of the impact on climate.  The reason was that climate change…

A closer look at Tesla’s Q2 earnings “beat” by Andrew Cornell

         Tesla reported Q2 earnings after the bell Wednesday and shares rose 20 points following what was widely described in the press as an earnings “beat” on both revenue,…

Sociobiology and Social Media

        Evolutionary biology suggests that between the ages of 12 and 25 people tend to be intensely interested in two things: social status and sexual selection.  This…

Private Firms and Climate Change

         In this essay, I mean private firms as opposed to public organizations like Department of Energy and the United Nations, not private firms versus publicly traded…

What We Learned From Tesla’s Earnings Announcement: Almost Nothing

      I was hopeful to gain insight into Tesla’s fair value from the company’s earnings announcement.  No such luck.  The value is still based on speculative growth options…

And Then You Pull the Switch

       A great many tech companies, Amazon is the most famous example and Snap is one of the most recent, are valued on what I call an “and…

What is Driving the Aggregate Market Up?

       In a rational economic model, there must be new news about expected future real cash flows for the market to rise substantially.  I say real cash flows…

Even the Best Companies can be Overpriced

        Amazon, Netflix and Google.  Three great companies whose products I use with regularity.  They are profitable.  They are growing.  They have a dominant market position.  They…

True Believers and Stock Pricing

            Back in 1977 Edward Miller wrote an article that still resonates today and provides insight into what I call “true believer” stocks like Tesla…

The Rush to Short Snap

     Sometimes shorting a stock can be difficult and expensive.  In order to sell a stock short, you must first borrow the shares.  Because there is not a centralized…

Growth Options One More Time – The Case of Snap

       In my previous discussion of growth options, I used Tesla as an example.  A better example is Snap.  Before saying why, a word of disclosure.  My godson,…

A DCF for Apple

      Despite the amount of time I have spent discussing it, Apple is actually a suprisingly easy company to value for two reasons.  First, it has a lot…

A DCF for Fitbit

       In the past, I have complained about people posting investment analysis without real analysis – that is without a complete DCF model.  Unfortunately, this criticism applies to…

An Updated DCF model for Tesla

      It still has aggressive assumptions for growth and profitability but comes in at $128.  Enjoy playing with the assumptions to see what valuations you get. Tesla DCF…

Growth Options and Risk

      Stewart Myers of MIT coined the term “growth options” to refer to future projects a company has the opportunity to undertake.  Because the projects have not yet…

One Reason Why VIX Matters

      Like many investors, the nine year bull market has left my fund with a large amount of unrealized capital gains.  With prices now very rich, at least…

VIXED

        The risk of investing in the overal stock market is measured by the market “volatility.”  That volatility is measured the annualized standard deviation of daily stock…

Is the Fed Responsible for the Chaos at Uber?

      Uber is awash in easy cash.  Private investors have pumped money into the company on increasingly generous terms with surprisingly few constraints for years.  Why?  Because with…

Come on Analysts, Do the Analysis

            As a manager of a small hedge fund, I like to compare my views on the valuation of common stocks to those of other…

What is a “Technology” Company from an Investment Perspective

       When most people are asked what a technology company is, they think of computers, software or bioscience – companies with a lot of PhDs doing complicated things….

One final word on Tesla

       One thing I have not discussed regarding Tesla is risk.  In my view, the risk for anyone buying the stock north of $350 is extraordinary.  What will…

Was I wrong about Tesla

       With Tesla hitting new highs over $350, it seems only fair to admit that I was wrong when I thought it was overvalued at $300.  But was…

The Mystery of Tesla

       The Model 3 will be coming soon.  The Model 3 is a cheaper version of the Model S, a four-door electric sedan.  A car design not very…

Tesla, Ford and GM

     Recently, the fact that the market capitalization of Tesla passed that of Ford and GM attracted a good deal of attention.  In some quarters, it was taken as…

Investment Performance

     Superior investment performance relative to a given benchmark can be attributed to some combination of three basic drivers.  The first is investor skill – the ability to find…

DCF Analysis and the Allocation of Capital

            Much of this blog has focused on fundamental valuation as an investment tool that can be used to identify mispriced stocks and, hopefully, make…

Time to Sell Apple

      I have been back and forth on Apple many times in this blog.  One constant theme, however, has been that the company needs to innovate aggresively on…

Learning from Investment History

      Perhaps the most important lesson I have learned from studying investment history is not to trust what I learn from investment history.  Some recent research I just…

Revisiting Tesla

        In honor of Tesla approaching new highs, I went back to a Aswath Damodaran and I wrote in early 2014.  At that time, we were trying…

This Time is Different

        Though attempting to time the market is hazardous at best, there is one guide I use – the notion that “This time is different.”  I take…

Valuing Trump

        On November 7, 2016, Bloomberg reported that the value of all United States equities was $23.742 trillion.  By the close on February 14, 2017, the value…

Tesla has almost caught Ford

     Given its run-up in the last few weeks, Tesla’s market capitalization is within a hair’s breath of Ford.  (Note, however, that market capitalization is not enterprise value because…

Fitbit – Valuation is the ultimate question

       In this blog, I have gone on and on about how Fitbit did not have adequate barriers to entry.  But that begs the question, what is meant…

Tesla is at $250 – Again

        Once again the stock is hitting $250.  And once again, the fundamentals are largely unchanged.  Time to write some more options.  The auto business remains low…

The Next Computer Revolution and Its Investment Implications

Begin with two facts.  One: computers continue to evolve and improve at an astonishing rate.  Two: people are not getting any smarter.  These two facts have driven and will drive…

Apple’s Culture of Secrecy

     I have long stated I think it is highly costly and unnecessary for Apple to maintain such a strict culture of secrecy.  I see it as a reason…

How Green and Efficient is the Tesla?

             Much of the investment thesis behind Tesla, as well as a reason for the government subsidies, is based on the premise that its cars are…

“Stationarity” and Investing: What Can We Learn from History?

            The best way to explain stationarity is with an example.  Suppose I want to estimate what the rainfall will be in Pasadena, California during…

Market Efficiency and the Impact of Passive Investing

            In recent weeks the Wall Street Journal has been reporting on the increasing move to passive index investing as opposed to active management.  As…

Technology Valuation and Barriers to Entry – A retrospective

       A constant theme of this blog has been the importance of barriers to entry in value creation.  Designing a cool new product will not create value if…

Global Warming in the Miami Airport

       This week I took a business trip to San Juan Puerto Rico via Miami.  A check of the weather before I left showed 80 degrees in Miami…

Valuing Computing Technology – An Update

            It has been a big month for product announcements by major technology companies and I see some valuation implications.  First, Google has now introduced…

Apple and Warren Buffett – Full Disclosure

       Back in May I was writing on this blog that the market was unduly pessimistic regarding Apple.  While Apple faced challenges, to rationalize the market price in…

Math Skills and Public Policy

         Math skills lie at the heart of understanding investments. If there is one thing I tell investment enthusiasts, it is to learn the mathematical models necessary to…

Secrecy and Theranos

       My knowledge of Theranos and its dramatic fall from grace is limited pretty much to the popular media – a source of which I am typically skeptical….

Mr. Musk and Growth Options

        Repeatedly I have marvelled at Mr. Musk’s ability to convince the market that Tesla has growth options with his words.  Well he did it again.  Tesla…

Growth Options and CEO Compensation

It is that time of year when CEO compensation is revealed and debated.  The Los Angeles Times just published its list of the 100 highest paid executives in California for…

What Mr. Buffett “Understands”

Warren Buffett frequently repeats that he only invests in businesses that he “understands.”  That is why he avoids technology companies.  What I have always found frustrating about Mr. Buffett’s statement…

The Value of “Growth Options”

             Financial economists divide the value of a company’s equity into two components: the value of “assets in place” and the value of “growth options.”  Although unfamiliar to many investors,…

Immigration by the Numbers

             Brexit has added an exclamation point to the realization that immigration is a critical issue to a growing fraction of people in the developed world.  Despite the vast amount…

Second Guessing

To close the loop on my Brexit posts you would think I would be very happy.  I thought that the market overreacted.  To attempt to profit from that belief, I…

Position is Profitable: What Now?

Well the hardest investment question just got harder.  The large position I took in the S&P 500 on the Brexit drop on Friday, over which I was ringing my hands…

The Hardest Investment Question

On Friday, I wrote that I thought the reaction to Brexit was excessive and took an additional long position in US stocks.  Today (Monday) the market is down over 2%….

Brexit and the US Stock Market

        To evaluate the reaction of the US stock market to Brexit remember that stock prices reflect the discounted present value of expected future cash flows at the…

Tesla Offers to Buy Solar City

In light of the number of times that Tesla has appeared in this blog, I would be remiss if I failed to weigh in on one of the most interesting…

Milton Friedman at the Airport

            While virtually everyone complains about air travels these days, I have always been at the forefront.  My wife, colleagues and friends became sufficiently exasperated with…

A Great Reader Comment on Apple

    In response to my recent Apple posts I got a very thoughtful email from a reader.  It was so good that I thought it was worth sharing. I…

One more thing on Apple

      I know I am a broken record regarding Apple’s policy of secret development followed by grand introductions  but I fear it has lead them to ignore small…

The Apple Investment Thesis: Some Doubts

           Recently, this blog has focused on two aspects of the investment Apple story.  One is that by any reasonable standard the stock is extraordinarily cheap. …

Go Pro – A Retrospective

In September 2014, I wrote the following.         The most overlooked fundamental of valuation is that rapid growth in earnings over the long term requires a moat…

Apple Should Forget the Secrecy

           One of the hallmarks of Steve Jobs management policies at Apple was secrecy.  Products were never discussed prior to launch.  The focus on secrecy was…

The Market’s Apple Pessimism

            The recent focus of this blog has been on how deeply pessimistic the market has become with respect to Apple.  Here is another take on…

Another Simple Calculation for Apple

           In the last 12 months, including the most recent quarter, Apple had a total net income of $50,678 million.  Taking this as a fair estimate…

The Most Important Number in Finance

     The most important number in finance is the equity risk premium – the return that investors can expect from holding the market portfolio of common stocks in excess…

Consider Options

           Options are typically seen as complex and risky.  They may be complex, but they need not be risky.  In fact, options are a great tool…

Tesla is over $250 – Again

              Tesla is over $250 per share – again.  And again for no clear fundamental reason.  The Model S shares have not exceeded projections and…

The Human Investment Decision

      It probably not wise for someone whose expertise is valuation and investing to venture into to political economics.  But what I call the “human investment decision” is…

A Useful Tool for Apple

       One useful tool to track for Apple is the cash adjusted P/E.  The Google sheet below downloads the necessary material and performs the calculation.  Currently, the tool…

Central Banks: Show Me the Inflation!

     The Fed rightly sets its goal for inflation at 2%.  Positive inflation has a number of benefits.  Most importantly, it allows for more flexible monetary policy by opening…

Peak iPhone?

       In order to do the valuations that I post here, I feel I have to get my hands dirty.  For that reason, I currently own 7 cell…

Fischer Black’s Guide to Value Investing

Fischer Black, one of the most creative financial economists of his generation and co-developer of the Black-Scholes option pricing model, offered what I use as a guide to value investing. …

Google Passes Apple – And Watch out for Amazon

       The operating value of the company equals the value of the company’s debt plus equity minuses the amount of cash and investments on its balance sheet.  As of this…

China, Oil and U.S. Stock Prices

In an article recently published in the Wall Street Journal, Alan Blinder asks a question that has puzzled many – why does the U.S stock market seem to drop on…

A Question to Consider

        What if there was a massive new oil discovery that made crude essentially free, would that addition to world wealth be bad news?  If so, how?…

The Hotelling Theorem and the Future Price of Crude Oil

      Despite the avalanche of reports and prognostications regarding the future of crude oil prices, there is virtually no mention of the starting point on which all scholarly…

GoPro: I Made a Mistake

       For all the hand wringing in this blog about the lack of barriers to entry and GoPro being overpriced, I made a mistake.  After GoPro melted down…

Making Sense of Apple’s Valuation

When Apple’s stock price moves significantly it is hard not to pay attention.  The company is iconic and its products are everywhere.  Apple’s stock price hit a high of $134.54…

George Soros Is Not Making Sense

      George Soros spoke at an economic forum in Sri Lanka on Thursday. The legendary investor said that global markets currently face a crisis that could be compared…

Apple: It’s all about the valuation

       Apple is now priced as if it is projected to have negative growth.  Using a discount rate of 9%, which is probably high, if Apple can maintain…

Carl Ichan and Apple

       Too often the investment business mimics the entertainment business.  An issue becomes hot, it dominates the press for a short time, and then it is gone and…

OIL!

     Suppose your neighbors have a fire sale and put their furniture on the market at extraordinarily low prices?  What you should do is buy all you can –…

A Warning

       It is easy to lose perspective when things are going well and for stock things have been going well for quite some time.  The chart table below…

Don’t Be Square

     I hate to be boring but here we go again.  Square has jumped to nearly $14 after its IPO.  To justify that valuation you have to assume significant…

Market Sentiment

      For long-term fundamental investors the path to superior returns is via market sentiment – both when it is high and it is low.  Gpro has been a…

Google vs. Amazon: A Valuation Faceoff

            Google (now Alphabet) and Amazon are two of the giants of the internet.  As of the close on Friday, November 6, Google had a stock…

Not so “fit” Fitbit

I know this blog is beginning to sound like a broken record but yet another example has emerged – Fitbit.  As the P/E multiple approached 50 on Monday, I could…

Tesla Once Again and “Short-termism”

            To follow up on the previous post, let’s consider Tesla, the other stock that has been consistently discussed here as being overvalued.  Before getting to…

Go Pro “Went”

     A little over a year ago I posted an article calling GoPro wildly overvalued at a price of $75 per share.  I argued that the barriers to entry…

Amazon and Google Jump

               Remember the value of a company equals the present value of the market’s expectations of future cash flow.  For the value to jump…

Opportunity and Diversity

           Recently concern has been expressed regarding the lack of diversity among the employees of major companies in Silicon Valley.  It is observed that the distribution…

Apple’s Car and Barriers to Entry

               The rumor that Apple is considering entering the car business is one more example of a central issue this blog has addressed repeatedly…

Mr. Musk: Please Read Our Paper

              About six months ago, when Tesla was trading north for $250 per share, Aswath Damodaran and I published a paper arguing that a price…

Value Creation and Technology

              In previous blogs, I have argued that Apple was undervalued.  No more.  My opinion now is that it is fully valued, if not over-valued. …

IBM Should Buy Blackberry

            Let me admit from the start I am a big fan of John Chen and what he has been doing at Blackberry.  My view is…

Fundamental Valuation and Investing

            It may seem like a time for crowing.  The position advocated in these posts, that GoPro and Tesla had reached values that were unsustainable, has…

The Mystery Behind Go Pro Option Pricing

            The stock performance of Go Pro has been stunning.  Rising from an IPO price of $24 earlier in the year to over $80.  All this…

Go Pro Investors Have Gone Crazy

           The most overlooked fundamental of valuation is that rapid growth in earnings over the long term requires a moat that provides a quasi-permanent barrier to…

The Social Media “Bubble”

               In a post on valuing social media companies, Aswath Damodaran, properly warns not to be misled by the fallacy of aggregation (http://aswathdamodaran.blogspot.com/2013/10/when-pieces-dont-add-up-micro-dreams.html).  More…

Is Apple Going the way of Louis Vuitton?

     The last several months have revealed two interesting things about Apple.  One – an apparent slowdown in innovation – has been widely discussed.  The new Macbooks, iPads and…

More on Tesla

               Several weeks ago Professor Aswath Damodaran of NYU posted a detailed valuation of Tesla that I discussed with him and examined carefully.  In…

What is Tesla worth?

           I know investors hate plowing through complex spreadsheets, but sometimes it is worth the money.  This is especially true with regard to Aswath Damodaran’s valuation…

Apple, Google and Amazon: A Valuation Mystery

            In an earlier post, I noted that the value of a company’s equity equals its current book value plus the present value of all future…

(Very) Long-run Economic Problems

            The figure below plots real per capita economic growth over the last 500,000 years.  The dramatic fact is that virtually all of the increase in…

Political Economic Leadership

            One of the most important aspects of political leadership is accurately framing an issue so that the populace can understand what is at stake and…

The Cost of Nuclear Weapons

            Here is an interesting fact hidden in David MacKay’s wonderful book “SustainableEnergy without the Hot Air.”  I quote: The financial expenditure by the USA…

Job “Creation”

            Hardly a day goes by without somebody trying to take credit for “job creation.”  Politicians from local mayors to the President are the most…

Apple, Samsung and Google

            Most discussions of the swoon in Apple stock focus on competition from Samsung, but that overlooks the fact that Apple is as much of…

GDP, Earnings and Stock Prices

            Earnings are the fundamental source of the value of common stock.  Although short-term market movements are unpredictable, in the long-run the market capitalization of…

Apple and Buybacks

            One recommendation that Warren Buffett gave Steve Jobs is that if he thought Apple’s stock price was “cheap” there was no better use of…

Apple versus Microsoft

            I keep hearing that the PC is dead.  The future is tablets, phones, glasses, watches and the like.  Microsoft is toast.  Apple is the future. …

Computer Technology and Valuation

            I admit to being a tech junkie.  In the last twenty years I have not gone three months without buying a new computer, tablet…

The Stock Market Rally and the Fed

A common refrain in the financial press is that we are experiencing a “Fed induced rally in the stock market.”  According to this popular account, the Fed is drowning the…

Does the Market Fail to Reward Long-run Managers?

        In the Wall Street Journal’s Intelligent Investor column, Jason Zweig reported on March 23 that the short-term focus of the stock market, measured by increasingly active…

Property Rights and Incentives

            A constant theme in this blog has been that the key to successful economic policy is “getting the incentives right.”  One element of making…

Apple, Buybacks and Einhorn

            A decade ago I published an article in the MIT Sloan Management Review arguing that the information that was most important for a company’s Board…

House of Cards

            Netflix is airing an entertaining series about Washington entitled “House of Cards.”  It stars Kevin Spacey who is a sensational actor.  The 13 segment series…

Aging and Technology

            Let’s start with a thought experiment, which I admit sounds like a B science fiction movie, but illustrates an important point.  Assume that everyone is…

Market Efficiency and Individual Investors

            There is an old joke about two hikers who come across a bear.  One turns to run and the other says, “It’s no use, people…

Equality of Opportunity

            One of the long-running, but still unresolved, debates in politics and the social sciences involves the relation between equality of opportunity and equality of outcomes. …

Where Have All the Young Men Gone?

            A theme reiterated in many of my posts is that the only way for our economy to grow (in per capita terms) is for…

Apple’s Future

            Though I am not a technology expert, the intense scrutiny of Apple makes it hard to resist talking about the company.  The main concern…

Supply Side Economics

            The phrase “supply side economics” brings to mind Arthur Laffer, Ronald Reagan and tax cuts, but the concept is much broader and more important than…

Negativity and Innovation

            A wellspring of innovation that is often overlooked is the tendency to be disgusted.  As Walter Isaacsondescribes in his provocative book on Steve Jobs,…

Government Productivity

         In previous posts, I stressed that the ultimate engine of economic growth is increased productivity.  It follows that aggregate economic growth depends on the rate of…

Long-run Economic Growth

              In an earlier post, I talked about economic growth but did not do it justice.  Growth is not an economic issue, it is…

Valuing Apple – Again

              In a previous post on valuing Apple, I explained that the value of a company equals its book value ($126 per share in the case of Apple) plus the…

Investment Performance

              As we close the books on 2012, the financial press is rife with report cards on investment performance for the past year.  What information do these report cards convey…

“Short-termism” and the Stock Market

              I read again today about the negative impact of “short-termism” on the ability of the American stock market to allocate capital properly.  By short-termism is meant the tendency of…

The Cost of Tax Code Complexity

              The total expense of complying with tax obligations includes both the taxes paid and the cost of compliance.  For this reason, there is always a gap between the total…

Cochrane vs The New York Times on Taxes

        Take a look at John Cochrane’s post on the New York Times December 30 editorial on tax policy.  What the Times never makes clear, and what Cochrane continually reminds…

Can Individual Investors Beat the Pros?

            Individual investors clearly do not have the resources to match the trading expertise of sophisticated institutions and hedge funds.  Nor do they have access to the automated trading…

Promises, Promises – Again

              GregMankiw has a wonderful article in the New York Times today in which he pays homage to the laws of arithmetic.  Those laws say that you cannot forever spend…

Hope I Die Before I Get Old

            It has been almost 50 years since Peter Townsend wrote those famous words to the rock song, My Generation.  Over that time, the baby boom generation to which he…

An Analogy for Thinking about Economic Policy

              In an earlier post, I wrote about how, despite the fascination with short-term economic stabilization policy, we actually know little about how such policy works (or fails to work)…

Valuing Apple

            So much has been written about Apple’s valuation in general and the recent price drop in particular that it is worth putting the whole…

Promises, Promises

              Promises are a unique form of political largess because they can be bestowed without an upfront payment.  At the head of the list of popular promises are those involving…

Economic Growth

              By definition economic output, commonly measured by GDP, equals the number of hours worked times the average productivity of the workforce.  For the economy to grow either hours worked…

Economic “Science” and Economic Policy

              The term “economic policy” immediately brings to mind government actions to combat economic fluctuations, particularly slowdowns.  Recent examples are the Fed’s experiments with quantitative easing and the Obama Administration’s…