Valuations

  • 25 Apr
    Here’s Why You Should Worry About What Happened In The Market Yesterday

    Here’s Why You Should Worry About What Happened In The Market Yesterday

    The thing with the stock market is that it gives you signals way ahead of time, but nobody wants to listen. The things I’ve been blabbering about over the past two years are the following:

    1. Higher interest rates will come just as the FED told us they would.
    2. Higher interest rates will squeeze valuations.
    3. Higher interest rates will slow down economic growth.
    4. Higher interest rates will slow down earnings growth.

    So, let’s start by discussing these.



    The 10-Year Treasury Passes 3%

    When the 10-year Treasury was below 3%, nobody seemed to care except a few crazy analysts like this scribe. However, when it crossed 3%, the market suddenly looked at what had been going on for nearly the last two years. More →

  • 05 Mar
    Stocks Are Crazy Risky Now – We’ll Reveal The Perfect Hedge

    Stocks Are Crazy Risky Now – We’ll Reveal The Perfect Hedge

    There’s some volatility in the markets that we haven’t seen for a long time.

    The increased volatility is a sign of nervousness and the market is looking for direction.

    No one knows where things will go in the short term as that’s impossible to know. Even Warren Buffett never fails to mention how he has absolutely no idea about where markets will go in the short to medium term.

    If we look at things from a macro perspective, the economy is at its limits and we’ve seen the actual GDP finally reach the potential GDP. More →

  • 23 Nov
    The Stock Market Will Crash In 2018 – Here’s What Could Trigger It

    The Stock Market Will Crash In 2018 – Here’s What Could Trigger It

    • All indicators show a stock market crash is imminent, but what will the trigger be?
    • I’ll discuss what can happen and how bad it could get.
    • As for the timing of it, the best thing is to be prepared for anything.



    Introduction

    To see whether the stock market will crash in 2018 or not, we have to first see what makes a stock market crash and the best way to do that is to look at the 2001 and 2008 market crashes because the financial environment prior to those crashes resembles the current market environment. More →

  • 24 Aug
    Gold Miners Vs. Gold Steaming Companies – There’s A Clear Winner When It Comes To The Better Investment Now

    Gold Miners Vs. Gold Steaming Companies – There’s A Clear Winner When It Comes To The Better Investment Now

    • I’ll compare current operating assets, future potential assets, valuations, costs, and cash flows for Barrick Gold and gold streaming company Franco Nevada.
    • Gold royalty companies have a lean business model and the appeal of constant positive cash flows, no matter the price of gold, is on their side.
    • Gold miners have a history that’s better to forget after terrible investments were made in 2012 when gold prices were high, but are you investing in the past or for the future?

    Introduction

    Two days ago, I described gold royalty, or streaming, companies and how they have outperformed gold and gold miners in the past.

    Today, I want to compare the largest gold royalty company, Franco Nevada Corporation (NYSE: FNV), with the largest gold miner, Barrick Gold Corporation (NYSE: ABX), to determine which is a better investment at this point in time, a gold miner or a gold royalty company. More →

  • 11 Aug
    Is Value Investing Dead?

    Is Value Investing Dead?

    • The last 10 years have been terrible for value investors as it has seemed like fundamentals don’t matter at all anymore.
    • There are limited options to be a value investor as the Russell 1000 value index has a price to book ratio above 2.
    • I’ll discuss three options for what a value investor can do and the historical results of such approaches.

    Introduction

    If you’re a value investor or have been invested in a value fund, you probably aren’t the happiest investor in the world right now. More →

  • 02 May
    The Art Of Business Valuation – Three Valuable Valuation Methods

    The Art Of Business Valuation – Three Valuable Valuation Methods

    • Don’t expect precision from business valuation, but accuracy helps a lot.
    • Calculating net present values, liquidation values, and stock market values are the best methods to use according to Klarman.

    Introduction

    Today, we’re really digging into the essence of Seth Klarman’s book Margin of Safety.

    Some think the market, being efficient, will tell you the exact value of a business, but history has shown that in the short term it often happens that the market values businesses extremely irrationally, either on the upside or on the downside. Knowing how to properly value a business gives an investor the perfect investing edge as it allows them to disregard what the market thinks and turn that into their own advantage by exploiting market mispricings.

    Let’s see what Klarman has to say about business valuation by going through chapter 8 of his book. More →

  • 01 May
    What You Can Learn From Under Armour

    What You Can Learn From Under Armour

    • There’s a divergence between Under Armour’s fundamentals and its stock price.
    • Every growth story is bound to end or at least slow down at some point, and at that point the stock usually gets hammered.
    • However, sentiment must not be underestimated as an $0.03 earnings beat can send the stock up 10%.

    Crazy Stock Movement

    Under Armour’s (NYSE: UAA, UA) stock has had a wild ride in the last four years. It went from $12 in 2013 to highs above $50 in 2015 only to fall to the current lows around $19. More →

  • 27 Apr
    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    • Positive sentiment alone has added 950 points to the S&P 500 in the last 5 years.
    • The S&P 500 has returned 12% in the last 5 years, but only 4.5% in the last 10 years and just 2.7% in the last 17 years. Don’t let current positive sentiment lead you to such terrible long term returns.
    • The opportunity cost might be significant, but the long term picture of not following the herd looks much better.

    Introduction

    I know that if I buy a stock with a price to earnings (P/E) ratio of 10 and stable future business prospects, my very long-term return should be around 10%, plus inflation and eventual growth. If I buy a stock at a P/E ratio of 5, my returns will be around 20%, while if I buy a stock with a P/E ratio of 20, my returns will be around 5%. It’s as simple as that, in the long term. More →

  • 16 Mar
    The U.S. Market Is Irrationally Expensive – What Does The Rest Of The World Have To Offer?

    The U.S. Market Is Irrationally Expensive – What Does The Rest Of The World Have To Offer?

    • Global markets are much cheaper, but there’s an even better option.
    • It’s relatively easy to find stocks that have huge growth potential at cheap valuations. I’ll describe three sectors.
    • In the long term, the current trend of favoring the U.S. dollar and equities is going to shift to where the growth is. There’s no doubt about it, so be prepared.

    Introduction

    The U.S. equity market is like driving a luxury car. It’s reliable (low volatility or as some say, low risk), costs you a bit more to maintain (low dividends), it makes you look good (investing with the big boys), and it will eventually bring you to where you want to go.

    Investing in emerging markets is like driving a cheap car. Nobody considers your investments cool (looking for bargains in unknown areas like Russia, China, or India), the car won’t be as reliable (break down more often – think volatility), but it will be cheap to repair (high dividends), and eventually will also bring you to where you want to go. More →

  • 07 Mar
    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    • According to Warren Buffet in 1984, investing and beating the market is simple: just use value investing and a margin of safety.
    • For this market, value investing is irrelevant. However if things change, value investing will become essential.
    • Spoiler alert: What I’ve written in this article you will either immediately like or totally disregard. Unfortunately, the latter will have a negative impact on your wealth.

    Introduction

    One short, 15-page article holds more investing insight than all the content published by the media in a year. It’s Warren Buffett’s article The Superinvestors of Graham and Doddsville.

    As the article was written in 1984, it gives you the real, non-political and unconstrained Buffett. Today’s Buffet is a hypocrite because he is forced to say index funds are a good investment even though stocks are at valuations he would never approve of. He has become so big that anything opposite to positive statements would lead to a possible market meltdown. Plus, don’t be confused by the fact that he recently bought $12 billion of stocks, as he bought into extremely cheap sectors, you can read more about that here.

    Today, I’ll summarize Buffett’s article and put it into today’s context. More →

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