Podcast appearances and mentions of price earnings

If you missed last week's special report, I urge you to take a look. Some of these are already starting to move, and fast .And so to today's piece. Tesla .I am just back from a two-week trip to the States, and what a time I had.I felt so privileged to be there at what feels like the dawn of a new golden age for this most amazing of countries.The first week I spent in Palm Springs, California, visiting my mum, and the second in Naples, Florida. Quite the contrast. One was Meltdown Central, the other was in a state of jubilation. Everyone everywhere was talking about the USAID revelations.I did not know Naples. What a stunning place. Hot, sunny, green, humid, beautiful (the architecture is lovely, even the newbuilds—that's traditional measures for you), polite, safe, cultured, healthy, delicious food. Life seems to slow down as soon you arrive. What's happening elsewhere no longer seems to matter. Were I to go there and settle, I think I would lose all ambition.The problem with settling there, though, is price. It has the most expensive real estate in the US. One house was for sale for $295 million. Even Satoshi Nakamoto would wince at paying that.“I told my kids, when they were growing up,” said Mike, who I was having dinner with, “this is not the real world. Naples is not reality. It's something else. They needed to know that.”I turned to his son—Matty Ice—the man who had brought me to Naples to talk tax, bitcoin, and other such things on the Runway Pod, an entrepreneur and family man in his early 30s. “Well, I'm not leaving. Why would I?”It turns out lots of people come to Naples on a temporary basis, then decide to stay.It's not just Naples real estate that is expensive, by the way. The whole of the US has got super dear. I paid $18 for a pint of beer in Miami airport. I had dinner at a friend's—he paid $60 for three steaks for the barbeque. I thought steak was cheap in the US. In a Palm Springs supermarket, I paid $4.99 for three organic onions. They saw me coming.In general, I would say food is twice the price it is here in the UK. And that's with a strong dollar. The country has got very expensive. Inflation is a big, big issue.My eldest son works in recruitment—in the chemicals industry—and most of the time he is recruiting in the US. He says US workers get paid three times the money for doing the same job as a UK worker - in that industry at least,But, whether it's Naples, neighbouring Fort Myers, or Miami, Florida; or Los Angeles or Palm Springs, California, there is also a lot of money in America. You can see it everywhere. It is several standard deviations of wealth up from the UK. The wealth is visible in the houses—even the middle-class houses—in the cars, in the clothes, in the prices. We in the UK have been left behind. It was not always like this.That wealth gap is only going to get bigger, as the UK continues to pursue high taxes, big regulation, mass migration, and zero growth, while the US goes in the other direction. The place is full of opportunity.Go to the US. Move there if you can, especially if you are young. The US was already something special, but something really special is happening there: the Washington purges are cleaning the place up. You've read the news, you've been on X, you've seen what's going on. You really don't need me to tell you.But watch what you eat. I put on 5 pounds (2 kilos) in just two weeks. Mind you, I couldn't stop eating. The food is yum. (People in the gym kept asking me how I got to be so lean - “by not living in America, and not eating American food” I explained).I don't believe this level of political reform would have happened to anything like the same extent without the involvement of Elon Musk. He really is doing God's work rooting out all that corruption. What emerges will be so much cleaner, more efficient, more honest, and more united.But of all the things I actually witnessed in person, do you know what most blew my mind?I did not expect this.It wasn't $295 million dollar houses. It wasn't all the private aircraft in Naples airport next to where we were recording.It was driving in a Tesla on autopilot. I'd never done it before. I know I am late to this, but OMG.Matty typed our destination into his computer, put the car into self-driving mode. Off it went.The Tesla was a noticeably better driver than I am. It positioned itself on the road well, staying in the middle of the lane at all times. It cornered beautifully. It maintained the exact right distance to the car ahead. It knew the speed limits of all the roads we drove on. It knew when the lights were changing and set off straight away. It has a 360-degree awareness—a human can only look in one direction—and knew exactly what other cars nearby were doing. It didn't get impatient and start doing silly things like jumping lights.With machine learning, each Tesla is feeding info back to HQ, so that every car is learning from the others' experiences. Teslas know the roads - every inch of them - better than you, even the local roads. They are learning how to deal with every conceivable traffic incident. This data-driven driving constantly updates.I am a backseat driver. I often push my foot down on the imaginary brake. As I was getting over my control issues, I did this at a red light in the distance. Turns out it was miles away. The Tesla braked at exactly the right time.It got us to our destination and then reversed and parked with precision into a tight spot. I'm a good parker. The Tesla was better. Of course it was. It has 360-degree vision, and my neck is getting stiff.The driving conditions were good. But how much better would it be in rain, fog or ice, I wondered.Tesla, Matty pointed out, is as much a software company—a platform like Airbnb, Facebook or TripAdvisor—as it is a car company.The next day, I had an Uber drive me from Naples to Miami airport.The Uber driver was good, but sometimes he was doing things on his phone—changing the podcast he was listening to, updating the map. “Look at the road,” I found myself thinking. Sometimes overt the 2-hour journey he strayed from the centre of the lane. One time he braked sharply. No such imperfection in the Tesla.Transport as we know it is about to changeThe main barriers to Tesla's self-driving progress are regulatory, but a certain Elon Musk is now in a position of influence. One of the reasons he is doing what he is doing is to clear out the regulators and bureaucrats who were so biased against him and blocked his progress—whom he came to despise.I think the regulatory barriers to self-driving vehicles start to come down quickly. Self-driving vehicles will soon be a feature on US roads. Then what happens?“I will have my car drop me at the office,” said Matty, “instruct it to pick me up at five, and then in the meantime I'll put it to work”. In other words, his car will not be idly parked all day. It will spend the day ferrying other people about. It will earn him money.Other Tesla owners will do the same. Suddenly owning a Tesla will become potentially profitable. A car will not be quite such a depreciating asset. No doubt some will buy fleets of them. Like any platform, Tesla itself is going to take a cut of the profit.Just to get the self-driving capability added to the software of the vehicle, you must pay another ten grand. Then comes the rent.Leaving your car parked 95% of the time, as most of us do—my car in London can stay parked for weeks at a time—is so inefficient. Not for much longer. At least, in the US. It'll be years before we allow it here in the UK or Europe. Of course, it will.What happens to American roads in the meantime? Fewer people are going to own cars, especially in cities. They won't need to. They can just call a Tesla. What happens to the rest of the auto industry? Fewer car sales. The cost of taxis though comes down. Drivers lose their jobs to robots. I guess something similar happens to the trucking industry too.The roads themselves are used more efficiently, as robots drive demonstrably better, leading to better traffic flow and less congestion.Public transport will see fewer users. Why use such a smelly system when you can travel privately in a Tesla? Self-driving cars were a pipe dream. That is about to change. American roads are about to change.There are other self-driving operators - Waymo, Cruise, or Mobileye - which are already fully operational in limited areas (ie driverless). They have partnered with the likes of Jaguar, Mercedes, Volvo and Hyundai, but they do not have Tesla's end-to-end autonomy. Nor do they have Tesla's immense network effect.The network effect is an incredibly powerful force in the evolution of a business. It's often more important that the tech itself (why, for example, VHS beat Betamax or CDs obliterated minidisk). It's why I advocate bitcoin ahead of other sh*tcoins. Tesla's dominance of roads could be on a par with Apple's dominance of the smartphone market. It is ahead of the pack.So should we all be buying stock in Tesla Inc (NASDAQ:TSLA)?Let's take a financial overview.Phew! It's an expensive company. A lot of what I've already described must already be priced in.With a market cap now over $1 trillion, it is among the world's most valuable companies.Annual revenue in 2024 was $98 billion, with minimal growth on the previous year. The pro-electric narrative of a few years ago has dissipated over the last couple of years.EBITDA for the twelve months ending in December 2024 was $15 billion. The EV-to-EBITDA, which compares the company's enterprise value to its EBITDA, stands at around 72, indicating a “premium valuation” relative to its operational earnings.Its trailing P/E ratio is high, high, high at 177, as is its forward P/E of 124. A lot of earnings growth is expected. This could reflect anticipation of Tesla's expansion into new markets, battery technology, and/or the self-driving revolution I have described, but it also points to a richly priced stock, for which investors are paying a substantial premium. The Price/Earnings to Growth (PEG) ratio, at 8.5, also implies Tesla is overvalued.Any setback—some kind of bad accident, a large insurance claim, a rival technology becoming suddenly competitive—and this stock can take a big hit.Turning to the company's financial health and profitability, Tesla's Return on Equity (ROE) is 10.4%—I've seen worse—and its Return on Invested Capital (ROIC) is 6%, which denotes an efficient use of capital, something Musk is known for.Tesla maintains a relatively low Debt/Equity ratio of 0.18, suggesting a conservative approach to leverage, which should reduce volatility. The current ratio of 2.02 indicates good short-term liquidity, allowing Tesla to meet its short-term liabilities comfortably.But it is a volatile stock—so perhaps one to buy on weakness. The 52-week high is $488, the low $139. You can more than double your money if you buy this well. Currently at $350 we are in the middle of the range—well up from the lows, but also well off the highs—and in a downtrend.Analysts, meanwhile, are divided. Predictions range from $115.00 to $550.00. reflecting a wide range of expectations.Tesla is unique. It has the potential to transform transport as we currently know it. It could have enormous first-mover advantage and a near monopoly on roads, as more and more people “put their car to work,” and what is currently an expense becomes a secondary source of income. It is the market leader, it is the technological leader, it could enjoy something of a monopoly on roads as it drives ahead of its competitors.To maintain and grow this valuation, it needs to stay ahead of rivals, it needs to overcome the regulatory barriers it faces, and it needs to manage the many inherent risks of the automotive and tech industries.But one thing Elon Musk has is vision. He will have seen all of this and be working towards it.I can quite easily envisage a scenario where Tesla's dominance of roads is near monopolistic—like Apple's dominance of phones or something.In such a scenario, its valuation will be a lot higher.It'll make money on the car, on the software, then on the rental.It will also be the most common car on the roads. Transport is about to change.Disclaimer:I am not regulated by the Financial Conduct Authority (FCA) or any other regulatory body as a financial advisor. Therefore, any information provided in this newsletter does not constitute regulated financial advice. It is solely an expression of opinion. Stocks are inherently risky. Please conduct your own due diligence and consult with a financial advisor if you have any doubts. Remember, markets can both rise and fall. I am not aware of your individual financial circumstances, so only invest money that you can afford to lose. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

If you missed last week's special report, I urge you to take a look. Some of these are already starting to move, and fast .And so to today's piece. Tesla .I am just back from a two-week trip to the States, and what a time I had.I felt so privileged to be there at what feels like the dawn of a new golden age for this most amazing of countries.The first week I spent in Palm Springs, California, visiting my mum, and the second in Naples, Florida. Quite the contrast. One was Meltdown Central, the other was in a state of jubilation. Everyone everywhere was talking about the USAID revelations.I did not know Naples. What a stunning place. Hot, sunny, green, humid, beautiful (the architecture is lovely, even the newbuilds—that's traditional measures for you), polite, safe, cultured, healthy, delicious food. Life seems to slow down as soon you arrive. What's happening elsewhere no longer seems to matter. Were I to go there and settle, I think I would lose all ambition.The problem with settling there, though, is price. It has the most expensive real estate in the US. One house was for sale for $295 million. Even Satoshi Nakamoto would wince at paying that.“I told my kids, when they were growing up,” said Mike, who I was having dinner with, “this is not the real world. Naples is not reality. It's something else. They needed to know that.”I turned to his son—Matty Ice—the man who had brought me to Naples to talk tax, bitcoin, and other such things on the Runway Pod, an entrepreneur and family man in his early 30s. “Well, I'm not leaving. Why would I?”It turns out lots of people come to Naples on a temporary basis, then decide to stay.It's not just Naples real estate that is expensive, by the way. The whole of the US has got super dear. I paid $18 for a pint of beer in Miami airport. I had dinner at a friend's—he paid $60 for three steaks for the barbeque. I thought steak was cheap in the US. In a Palm Springs supermarket, I paid $4.99 for three organic onions. They saw me coming.In general, I would say food is twice the price it is here in the UK. And that's with a strong dollar. The country has got very expensive. Inflation is a big, big issue.My eldest son works in recruitment—in the chemicals industry—and most of the time he is recruiting in the US. He says US workers get paid three times the money for doing the same job as a UK worker - in that industry at least,But, whether it's Naples, neighbouring Fort Myers, or Miami, Florida; or Los Angeles or Palm Springs, California, there is also a lot of money in America. You can see it everywhere. It is several standard deviations of wealth up from the UK. The wealth is visible in the houses—even the middle-class houses—in the cars, in the clothes, in the prices. We in the UK have been left behind. It was not always like this.That wealth gap is only going to get bigger, as the UK continues to pursue high taxes, big regulation, mass migration, and zero growth, while the US goes in the other direction. The place is full of opportunity.Go to the US. Move there if you can, especially if you are young. The US was already something special, but something really special is happening there: the Washington purges are cleaning the place up. You've read the news, you've been on X, you've seen what's going on. You really don't need me to tell you.But watch what you eat. I put on 5 pounds (2 kilos) in just two weeks. Mind you, I couldn't stop eating. The food is yum. (People in the gym kept asking me how I got to be so lean - “by not living in America, and not eating American food” I explained).I don't believe this level of political reform would have happened to anything like the same extent without the involvement of Elon Musk. He really is doing God's work rooting out all that corruption. What emerges will be so much cleaner, more efficient, more honest, and more united.But of all the things I actually witnessed in person, do you know what most blew my mind?I did not expect this.It wasn't $295 million dollar houses. It wasn't all the private aircraft in Naples airport next to where we were recording.It was driving in a Tesla on autopilot. I'd never done it before. I know I am late to this, but OMG.Matty typed our destination into his computer, put the car into self-driving mode. Off it went.The Tesla was a noticeably better driver than I am. It positioned itself on the road well, staying in the middle of the lane at all times. It cornered beautifully. It maintained the exact right distance to the car ahead. It knew the speed limits of all the roads we drove on. It knew when the lights were changing and set off straight away. It has a 360-degree awareness—a human can only look in one direction—and knew exactly what other cars nearby were doing. It didn't get impatient and start doing silly things like jumping lights.With machine learning, each Tesla is feeding info back to HQ, so that every car is learning from the others' experiences. Teslas know the roads - every inch of them - better than you, even the local roads. They are learning how to deal with every conceivable traffic incident. This data-driven driving constantly updates.I am a backseat driver. I often push my foot down on the imaginary brake. As I was getting over my control issues, I did this at a red light in the distance. Turns out it was miles away. The Tesla braked at exactly the right time.It got us to our destination and then reversed and parked with precision into a tight spot. I'm a good parker. The Tesla was better. Of course it was. It has 360-degree vision, and my neck is getting stiff.The driving conditions were good. But how much better would it be in rain, fog or ice, I wondered.Tesla, Matty pointed out, is as much a software company—a platform like Airbnb, Facebook or TripAdvisor—as it is a car company.The next day, I had an Uber drive me from Naples to Miami airport.The Uber driver was good, but sometimes he was doing things on his phone—changing the podcast he was listening to, updating the map. “Look at the road,” I found myself thinking. Sometimes overt the 2-hour journey he strayed from the centre of the lane. One time he braked sharply. No such imperfection in the Tesla.Transport as we know it is about to changeThe main barriers to Tesla's self-driving progress are regulatory, but a certain Elon Musk is now in a position of influence. One of the reasons he is doing what he is doing is to clear out the regulators and bureaucrats who were so biased against him and blocked his progress—whom he came to despise.I think the regulatory barriers to self-driving vehicles start to come down quickly. Self-driving vehicles will soon be a feature on US roads. Then what happens?“I will have my car drop me at the office,” said Matty, “instruct it to pick me up at five, and then in the meantime I'll put it to work”. In other words, his car will not be idly parked all day. It will spend the day ferrying other people about. It will earn him money.Other Tesla owners will do the same. Suddenly owning a Tesla will become potentially profitable. A car will not be quite such a depreciating asset. No doubt some will buy fleets of them. Like any platform, Tesla itself is going to take a cut of the profit.Just to get the self-driving capability added to the software of the vehicle, you must pay another ten grand. Then comes the rent.Leaving your car parked 95% of the time, as most of us do—my car in London can stay parked for weeks at a time—is so inefficient. Not for much longer. At least, in the US. It'll be years before we allow it here in the UK or Europe. Of course, it will.What happens to American roads in the meantime? Fewer people are going to own cars, especially in cities. They won't need to. They can just call a Tesla. What happens to the rest of the auto industry? Fewer car sales. The cost of taxis though comes down. Drivers lose their jobs to robots. I guess something similar happens to the trucking industry too.The roads themselves are used more efficiently, as robots drive demonstrably better, leading to better traffic flow and less congestion.Public transport will see fewer users. Why use such a smelly system when you can travel privately in a Tesla? Self-driving cars were a pipe dream. That is about to change. American roads are about to change.There are other self-driving operators - Waymo, Cruise, or Mobileye - which are already fully operational in limited areas (ie driverless). They have partnered with the likes of Jaguar, Mercedes, Volvo and Hyundai, but they do not have Tesla's end-to-end autonomy. Nor do they have Tesla's immense network effect.The network effect is an incredibly powerful force in the evolution of a business. It's often more important that the tech itself (why, for example, VHS beat Betamax or CDs obliterated minidisk). It's why I advocate bitcoin ahead of other sh*tcoins. Tesla's dominance of roads could be on a par with Apple's dominance of the smartphone market. It is ahead of the pack.So should we all be buying stock in Tesla Inc (NASDAQ:TSLA)?Let's take a financial overview.Phew! It's an expensive company. A lot of what I've already described must already be priced in.With a market cap now over $1 trillion, it is among the world's most valuable companies.Annual revenue in 2024 was $98 billion, with minimal growth on the previous year. The pro-electric narrative of a few years ago has dissipated over the last couple of years.EBITDA for the twelve months ending in December 2024 was $15 billion. The EV-to-EBITDA, which compares the company's enterprise value to its EBITDA, stands at around 72, indicating a “premium valuation” relative to its operational earnings.Its trailing P/E ratio is high, high, high at 177, as is its forward P/E of 124. A lot of earnings growth is expected. This could reflect anticipation of Tesla's expansion into new markets, battery technology, and/or the self-driving revolution I have described, but it also points to a richly priced stock, for which investors are paying a substantial premium. The Price/Earnings to Growth (PEG) ratio, at 8.5, also implies Tesla is overvalued.Any setback—some kind of bad accident, a large insurance claim, a rival technology becoming suddenly competitive—and this stock can take a big hit.Turning to the company's financial health and profitability, Tesla's Return on Equity (ROE) is 10.4%—I've seen worse—and its Return on Invested Capital (ROIC) is 6%, which denotes an efficient use of capital, something Musk is known for.Tesla maintains a relatively low Debt/Equity ratio of 0.18, suggesting a conservative approach to leverage, which should reduce volatility. The current ratio of 2.02 indicates good short-term liquidity, allowing Tesla to meet its short-term liabilities comfortably.But it is a volatile stock—so perhaps one to buy on weakness. The 52-week high is $488, the low $139. You can more than double your money if you buy this well. Currently at $350 we are in the middle of the range—well up from the lows, but also well off the highs—and in a downtrend.Analysts, meanwhile, are divided. Predictions range from $115.00 to $550.00. reflecting a wide range of expectations.Tesla is unique. It has the potential to transform transport as we currently know it. It could have enormous first-mover advantage and a near monopoly on roads, as more and more people “put their car to work,” and what is currently an expense becomes a secondary source of income. It is the market leader, it is the technological leader, it could enjoy something of a monopoly on roads as it drives ahead of its competitors.To maintain and grow this valuation, it needs to stay ahead of rivals, it needs to overcome the regulatory barriers it faces, and it needs to manage the many inherent risks of the automotive and tech industries.But one thing Elon Musk has is vision. He will have seen all of this and be working towards it.I can quite easily envisage a scenario where Tesla's dominance of roads is near monopolistic—like Apple's dominance of phones or something.In such a scenario, its valuation will be a lot higher.It'll make money on the car, on the software, then on the rental.It will also be the most common car on the roads. Transport is about to change.Disclaimer:I am not regulated by the Financial Conduct Authority (FCA) or any other regulatory body as a financial advisor. Therefore, any information provided in this newsletter does not constitute regulated financial advice. It is solely an expression of opinion. Stocks are inherently risky. Please conduct your own due diligence and consult with a financial advisor if you have any doubts. Remember, markets can both rise and fall. I am not aware of your individual financial circumstances, so only invest money that you can afford to lose. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe

We're in for a big week with earnings reports and the Federal Reserve meeting. Many big names will report this week, including AAPL, META, TSLA, and NOW. With the market having two good years back to back, you must start to think about the valuations of the companies you're investing in. Today, we illustrate this with $AAPL and discuss its P/E ratio. The P/E ratio stands for Price/ Earnings and helps us begin our valuation process. We step through this example through the episode. Remember, you also have until April 15th to make your IRA contributions for 2024. Although this deadline is a couple of months away, getting ahead of it is always a good idea. 

Hello everyone, it's Bill Thompson – T Bill. Some of the things covered on today's session include:  The Price Earnings Ratio Broadcom over $1 Trillion in market value on strong earnings and growing AI numbers.  The National Labor Relations Board rules that reality tv show participants are employees.  The Federal Reserve expected to cut interest rates next week. 

With Fed messaging making it clear they're not yet done fighting inflation, the market is left to contend with the recent rally and prepare to adjust growth expectations.-----Transcript-----Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, August 29th, at 11 a.m. in New York. So let's get after it. After the Fed's highly anticipated annual meeting in Jackson Hole has come and gone with a very clear message - the fight against inflation is far from over, and the equity markets did not take it very well. As we discussed in this podcast two weeks ago, the equity markets may have gotten too excited and even pre traded a Fed pivot that isn't coming. For stocks, that means the bear market rally is likely over. Technically speaking, the rally looks rather textbook. In June, we reached oversold conditions with breadth falling to some of the lowest readings on record. However, the rally stalled out exactly at the 200-day moving average for the S&P 500 and many key stocks. On that basis alone, the sharp reversal looks quite ominous to even the most basic tactical analysts. From a fundamental standpoint, having a bullish view on U.S. stocks today is also challenging. First, there is valuation. As we have discussed many times in our research, the Price/Earnings ratio is a function of two inputs; 10 year U.S. Treasury yields and the Equity Risk Premium. Simplistically, the U.S. Treasury yield is a cost of capital component, while the Equity Risk Premium is primarily a function of growth expectations. Typically, the Equity Risk Premium is negatively correlated to growth. In other words, when growth is accelerating, or expected to accelerate, the Equity Risk Premium tends to be lower than normal and vice versa. Our problem with the view that June was the low for the index in this bear market is that the Equity Risk Premium never went above average. Instead, the fall in the Price/Earnings ratio from December to June was entirely a function of the Fed's tightening of financial conditions, and the higher cost of capital. Compounding this challenge, the Equity Risk Premium fell sharply over the past few months and reached near record lows in the post financial crisis period. In fact, the only time the Equity Risk Premium has been lower in the past 14 years was at the end of the bear market rally in March earlier this year, and we know how that ended. Even after Friday's sharp decline in stocks, the S&P 500 Equity Risk Premium remains more than 100 basis points lower than what our model suggests. In short, the S&P 500 price earnings ratio is 17.1x, it's 15% too high in our view. Second, while most investors remain preoccupied with the Fed, we have been more focused on earnings and the risk to forward estimates. In June, many investors began to share our concern, which is why stocks sold off so sharply in our view. Companies began managing the quarter lower, and by the time second quarter earnings season rolled around positioning was quite bearish and valuations were more reasonable at 15.4x. This led to the "bad news is good news" rally or, as many people claim, "better than feared" results. Call us old school, but better than feared is not a good reason to invest in something if the price is high and the earnings are weak. In other words, it's a fine reason for stocks to see some relief from an oversold condition, but we wouldn't commit any real capital to such a strategy. Our analysis of second quarter earnings showed clear deterioration in profitability, a trend we believe is just starting. In short, we believe earnings forecast for next year remains significantly too high. Finally, last week's highly anticipated Fed meeting turned out to be a nonevent for bonds, while it appeared to be a shock for stock investors. Ironically, given the lack of any material move in yields, all of the decline in the Price/Earnings ratio was due to a rising Equity Risk Premium that still remains well below fair market levels. The bottom line, we do think Friday's action could be the beginning of an adjustment period to growth expectations. That's good. In our experience, such adjustments to earnings always take longer than they should. Throw on top of that, the fact that operating leverage is now more extreme than it was prior to COVID, and the negative revision cycle could turn out to be worse than usual. Next week, we will attempt to quantify more specifically how challenging the earnings outcome might be based on an already reported macro data. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcast app. It helps more people to find the show.

The clip is from the Berkshire Hathaway annual meeting in 1998

Dave discusses his strategy for crypto and crypto staking. We talk about James O'Shaughnessy's book "What Works On Wall Street". There is one value ratio that has worked better than any other over the past 70 years, and it's not Price/Earnings. The "Dogs Of The Dow" hunt well over time... Jamie Dimon's earnings call was almost as bearish as the RH earnings call a couple of weeks ago. --- This episode is sponsored by · Anchor: The easiest way to make a podcast. https://anchor.fm/app Support this podcast: https://anchor.fm/chinchillapicking/support

Top Metaverse Stock 2022 | Unity Stock Price Earnings Analysis U Stock? Jose Najarro takes a look at one of the best unity stock prices to buy in 2022. Unity software stock analysis. Is it time to buy $u stock price?https://www.fool.com/jose*A portion of this video is sponsored by The Motley Fool. Visit https://fool.com/josenajarro to get access to my special offer. The Motley Fool Stock Advisor returns are 557% as of 3/31/2021 and measured against the S&P 500 returns of 122% as of 3/31/2021. Past performance is not an indicator of future results. All investing involves a risk of loss. Individual investment results may vary, not all Motley Fool Stock Advisor picks have performed as well.*I have a position in $MSFT $UNewsLetterhttps://www.fool.com/josenajarroDISCORD GROUP!! https://discord.gg/wbp2Z9STwitter: https://twitter.com/_JoseNajarroDISCLAIMER: I am not a financial advisor.  All content provided on this channel, and my other social media channels/videos/podcasts/posts, is for entertainment purposes only and reflects my personal opinions.  Please do your own research and talk with a financial advisor before making any investing decisions. 

Buy Intel Stock Now? INTC Stock Price Earnings Analysis. Jose Najarro takes a look at one of the biggest semiconductor stocks of 2022. Is it time to buy Intel Stock Price after INTC stock earnings news?https://www.fool.com/jose*A portion of this video is sponsored by The Motley Fool. Visit https://fool.com/josenajarro to get access to my special offer. The Motley Fool Stock Advisor returns are 557% as of 3/31/2021 and measured against the S&P 500 returns of 122% as of 3/31/2021. Past performance is not an indicator of future results. All investing involves a risk of loss. Individual investment results may vary, not all Motley Fool Stock Advisor picks have performed as well.*I have a position in $AMD $NVDANewsLetterhttps://www.fool.com/josenajarroDISCORD GROUP!! https://discord.gg/wbp2Z9STwitter: https://twitter.com/_JoseNajarroDISCLAIMER: I am not a financial advisor.  All content provided on this channel, and my other social media channels/videos/podcasts/posts, is for entertainment purposes only and reflects my personal opinions.  Please do your own research and talk with a financial advisor before making any investing decisions. 

This Semiconductor Stock Expects 20% Growth! Buy ASML Stock Price Earnings? ASML stock earnings just came out and Jose Najarro is doing a quick ASML Stock Analysis. Is it time to buy this Chip stock in 2022, is this the best semiconductor stock of 2022?https://www.fool.com/jose*A portion of this video is sponsored by The Motley Fool. Visit https://fool.com/josenajarro to get access to my special offer. The Motley Fool Stock Advisor returns are 557% as of 3/31/2021 and measured against the S&P 500 returns of 122% as of 3/31/2021. Past performance is not an indicator of future results. All investing involves a risk of loss. Individual investment results may vary, not all Motley Fool Stock Advisor picks have performed as well.*I do not have a position in $ASML or $TSMNewsLetterhttps://www.fool.com/josenajarroDISCORD GROUP!! https://discord.gg/wbp2Z9STwitter: https://twitter.com/_JoseNajarroDISCLAIMER: I am not a financial advisor.  All content provided on this channel, and my other social media channels/videos/podcasts/posts, is for entertainment purposes only and reflects my personal opinions.  Please do your own research and talk with a financial advisor before making any investing decisions. 

While our outlook for 2022 already called for a hawkish Fed, recent signals from the central bank of more aggressive tightening have given cause to reexamine some of our calls while remaining steadfast in key aspects of our narrative for the year.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Tuesday, January 18th at 11:30 a.m. in New York. So, let's get after it. Last week, our economics team adjusted its forecast on Fed policy, given the more hawkish tone in the most recent Fed minutes and commentary from Chair Powell and other governors. We now expect the Fed to fully exit its asset purchase program known as quantitative easing by April. We also expect the Fed to increase rates by 25 basis points 4 times this year and begin balance sheet normalization by July. That's a lot of tightening, and fits with our general outlook for 2022 that we published back in November. To recall, our Fire and Ice narrative assumed the Fed was behind the curve and would need to catch up in a hurry, given the dramatic move in inflation that we've experienced during this pandemic. Public outcry and consumer confidence measures suggest inflation is the number one concern right now - making this a political issue as much as an economic one. Expect the Fed to keep pushing until financial conditions tighten. What that means for equity markets is that valuations should come down this year via a combination of higher long term interest rates and higher equity risk premiums. The changes to our Fed forecast simply mean it's likely to happen faster now, making the hand-off between lower valuations and higher earnings more challenging. This is the classic finishing move to the mid-cycle transition we've been anticipating for months, and it appears we've finally arrived. Our outlook for 2022 incorporated a fairly hawkish Fed, and while that hawkishness has increased since we published in mid-November, it doesn't change our year-end targets, which are already well below the consensus. Specifically, our base case year-end target for the S&P 500 is 4400. This compares to the median forecast of approximately 4900. Our target assumes a meaningfully lower Price Earnings multiple of 18x the forward 12-month earnings. This would be a 15% drop from the current Price Earnings multiple of 21x. Our EPS forecast is largely in line with consensus. In short, our view differs with consensus mainly on valuation rather than growth. The faster ending to QE and more aggressive rate hikes simply brings this valuation risk forward to the first half of the year. Furthermore, given the Fed's new guidance it will try to shrink its balance sheet, means valuations could even overshoot to the downside of what we think is fair value. Bottom line, the bringing forward of tapering and rate hikes is likely to lead to a 10-20% correction in the first half of this year for the S&P 500, in our view. The good news is that markets have been adjusting for months to this new reality, with 40% of the Nasdaq having corrected by 50% or more. As we've noted many times, the breadth of the market remains poor as it goes through the classic rolling correction under the surface as the index grinds higher. This phenomenon is largely due to the relentless inflows from retail investors into equities. On one hand, this rotation from bonds to stocks by asset owners makes perfect sense in a world of rising prices. After all, stocks are a decent hedge against inflation, unlike bonds. However, certain stocks fit that billing better than others. In its simplest form, it means value over growth stocks or short duration over long - think dividend growth stocks. In addition, we would favor defensively oriented value stocks relative to cyclicals, given our view growth may slow a bit more in the near term before re-accelerating in the second half. Bottom line, don't fight the Fed and be patient with new capital deployments until later this Spring. Thanks for listening! If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

2022 is likely to be a volatile year for markets but look to price earnings as a guide as to what companies to pick. That's the advice of Jack Kouzi, Director for Strategy at VFS Group. Image credit: Unsplash.com

2022 is likely to be a volatile year for markets but look to price earnings as a guide as to what companies to pick. That's the advice of Jack Kouzi, Director for Strategy at VFS Group. Image credit: Unsplash.com

Derek Moore responds to market pundits making 2022 predictions where they examine whether stock prices will see moves diven by changes in earnings vs PE multiples expanding. Also covered will be effect share buybacks have on earnings per share EPS. Then he compares Amazon and Apple forward multiples and share counts.   PE Ratio EPS Earnings per share Calculate Market Cap Multiple expansion versus earnings expansion Forward PE vs PE Ratio S&P 500 2021 price driven by earnings expansion while multiples contracted Amazon AMZN comparing 2020 earnings to 2005 price along with share counts Apple has seen a 37% reduction in shares outstanding due to buybacks over 10 years     Mentioned in this Episode:   Contact Derek Moore derek.moore@zegafinancial.com   Derek Moore's Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&

This week on “Inside the Economy”, we discuss inflation and government spending. We continue to see inflation at elevated levels, but with low wage growth, a strong dollar, and core services inflation sitting around 4%, where do we see inflation going in the future? State and Local Governments are seeing an uptick in revenues as they continue to get some help at the Federal level. But once the Covid Federal support for the consumer goes away, how much will they be on the hook for? Tune in to learn about all this and more! Key Takeaways: - S&P 500 Price/Earnings leveling off - Crude Oil continuing to stay around $70 - Jobless Claims continue to decrease

This week on “Inside the Economy”, we discuss inflation and government spending. We continue to see inflation at elevated levels, but with low wage growth, a strong dollar, and core services inflation sitting around 4%, where do we see inflation going in the future? State and Local Governments are seeing an uptick in revenues as they continue to get some help at the Federal level. But once the Covid Federal support for the consumer goes away, how much will they be on the hook for? Tune in to learn about all this and more! Key Takeaways: S&P 500 Price/Earnings leveling off Crude Oil continuing to stay around $70 Jobless Claims continue to decrease

What's been catching the eye of both Steves this week? What's Paul going to do about Johnson & Johnson? And which of the Playing FTSE team is the most ill? Find out in this week's Playing FTSE podcast!   We kick the show off with the Steves talking about things that they've been buying in the last week. Earnings reports and other events have caused some significant price movements in stocks that the Steves are interested in, most significantly Brazilian Fintech StoneCo. A fall in the value of one of their investments coupled with a difficult economic situation in Brazil has caused a significant fall in StoneCo's share price. Both Steves have been jumping on board. Steve D explains why.   Next up is this week's game, which is all about the PEG ratio. A metric for valuing companies by comparing the Price-Earnings multiple to the anticipated EPS growth, the PEG ratio was made famous by Peter Lynch. Steve W asks the questions as Paul and Steve D try to guess which companies have the lowest (and therefore best) PEG ratios. Along the way, we discuss some of the things that the PEG ratio shows us (how stocks with low PE multiples aren't always cheap) and some of the limitations of the PEG ratio (its inability to price stocks with no net earnings).   The big story of the week is the separation of Johnson & Johnson into two companies (presumably called “Johnson” and “Johnson”). As JNJ prepares to spin out its consumer products arm and hold onto its medical devices and pharmaceutical businesses, Steve W thinks about the motivations for the move, Steve D points out the change in leadership, and Paul talks about his plans for his JNJ holding.   In earnings news, US retailer Macy's has shot up after earnings came in stronger than anticipated. A stock that was widely-regarded as a victim of lockdowns, travel restrictions, and pandemic measures, M stock has rallied remarkably since its April lows. Paul reflects on how that one passed him by as the Steves watch on.   Lastly, we finish with a review of some 13Fs. It's that time of the quarter where the institutional investors show us what they've been up to. With quiet reports from Berkshire Hathway and Pabrai Investments, we turn our attention to the endlessly-fascinating Michael Burry. The news is that Burry's been retreating away from the US and has exited the trading positions that were at the top of Scion's holdings last quarter. As Steve W comments on Scion's second-largest holding, Paul wonders about how investment decisions get made at Burry's firm.

The stupendous rise in the Indian benchmark indices – the S&P BSE Sensex and the Nifty50 – has given rise to valuation concerns in the past few months, at a time when commodity price-fuelled inflation concerns are rearing their head again. After UBS, which downgraded India to “underweight” from “overweight”, now Nomura has also downgraded Indian equities to “neutral” from “overweight”, citing unfavourable risk-reward. Nomura has said: “We now see an unfavourable risk-reward given valuations, as a number of positives appear to be priced in, whilst headwinds are emerging… India's valuation appears “very stretched” as 77 per cent of domestic stocks in the MSCI index are trading higher than the pre-pandemic or post 2018 average valuations”.  The rise in inflation, coupled with high valuations, has triggered a correction in the past few sessions which have seen the Sensex slip below the 61,000 mark, and the Nifty below 18,000. The price-to-earnings ratio, or the P-E, is one of the most widely used tools by which investors and analysts determine a stock's relative valuation.  Amit Sachdeva of HSBC believes high P-E of Indian equity benchmarks is the ‘new norm' in this liquidity-driven market. But not all are convinced.  A quick check of the stocks that comprise the BSE 500 index reveals startling results. Some stocks like Piramal Enterprises, Ujjivan Financial Services, Adani Green, Ruote Mobile and IDFC are trading at an astronomical P-E of 545 times to 910 times their FY22 earnings. Santosh Singh, head of research at Motilal Oswal AMC, says any liquidity-driven rally that is not backed by fundamentals will not last: Recent rally was not based on fundamentals Certain stocks are commanding high double or triple digit forward P-E Liquidity-driven valuation will not sustain Does this mean there's more pain in store for the markets? Santosh Singh, head of research at Motilal Oswal AMC, says: Not worried about markets Financials will see earnings upgrade, supporting benchmarks However, individual stocks with high P-E will see a significant fall Given this, the road ahead for the markets looks choppy, with stock-specific correction taking the centre stage. On an immediate basis, corporate earnings will sway the market mood today, as many prominent names like Axis Bank, Bajaj Finance, Cipla, and Dr Lal Path Labs are set to report their results. Watch Video

How to value stocks – an introduction to valuation conceptsTwo years ago I wrote a popular blog that explained some simple share market concepts and jargon (see here). Building on this introductory information, I thought it was timely to discuss basic share market valuation principles to help investors assess whether a stock is over or under valued.To be clear, I'm not advocating investing in direct stocks. In fact, there is an overwhelming amount of evidence that demonstrates direct share investing (i.e. picking stocks) fails to produce above market returns over the long run. However, it is still useful to understand basic share market valuation principles.The ‘Efficient-Market Hypothesis'The Efficient-Market Hypothesis (EMH) was popularised by Nobel laureate, Professor Eugene Fama. The hypothesis suggests that share prices always accurately reflect all available information. The idea is that the market is made up of thousands (and in some cases, perhaps millions of people) that analyse all available information in relation to a particular company. Many of them are professional investment managers with a lot of education and experience working 40-80 hours per week. This information informs their trades i.e. at what price they are happy to buy and sell. And it is this process of “price discovery” that determines the value of a stock.My personal view is that the EMH might be true over long periods of time. However, in the short run, it is possible (in fact, likely) that markets can be inefficient. Behavioural economics explains that sometimes investors can act irrationally, driven by overconfidence, overreaction, overexuberance, greed, fear and so on. The “meme stock” behaviour earlier this year is a perfect example of how markets can be inefficient and stock prices can be wrong.This is why it's useful to understand basic valuation principals.The value of a business is equal to the present value of its future cash flowsThe value of any business is equal to the present value of its future cash flows. To calculate that, you need to forecast the business' free cash flows and then apply a discount rate to express the value in today's dollars. The discount rate must reflect the risk associated with the cash flows e.g. the higher the risk, the higher the discount rate. This is called Discounted Cash Flows analysis.The table below provides a simple example. This business has a 5-year government contract and is expected to generate $100 per year of free cash flow (i.e. income less all expenses including taxation). After 5 years, the business is not expected to continue. Because the business' revenue is contractually guaranteed and therefore low risk, a lower discount rate of 8% has been used. The discount rate reflects the return an investor would require to be compensated for the risk. Each year is discounted in today's dollars using the discount rate. For example, refer to year three. The present value of $100 is $79.38. That means if I have $79.38 today and earn 8% p.a., I'll have $100 in 3 years from now.The aggregate value of the present value of future free cash flows is the business' value, which is $399.See hereShortcut method: valuation multiplesCompleting a DCF analysis is time consuming and there's probably not enough publicly available information. A shortcut valuation method is to use a valuation multiple. I have listed the common valuation multiples below.§ Price/Earnings – the PE ratio is probably the most common valuation ratio. It measures the value of a company compared to its earnings per share (EPS). The higher the PE, the higher the valuation and the riskier it is. The average PE ratio over the past 20 years is circa 26 for the US market (S&P500) and 18 for the Australian market. The US market's PE is currently trading at around 34 times and the Australian at 29 times, which is probably due to two factors. Firstly, temporarily lower earnings due to Covid. Secondly, elevated valuation multiples.§ Price/Sales – the price/sales multiple is used as a check/secondary measure or for businesses that are not yet profitable (and are expected to benefit from huge scale, such as tech companies, and be profitable in the future). The shortcoming of the price/sales multiple is that it doesn't consider a company's profitability which is ultimately a very important factor.§ Price/Book Value – the price/book ratio compares the value of a company to its net asset value on its balance sheet. Price/book multiples typically range between 1 and 3 times. This valuation metric is less meaningful in some industries, particularly ones that have valuable intangible assets, as these are rarely included on balance sheets.Two factors that impact valuation multiplesGenerally, there are two factors that will influence valuation multiples:§ Risk – how likely is it that the business will deliver its expected results? Does it have a well-established business? Does it have a strong track record of profitability and paying dividends? Does it have a strong financial position with little debt? These are some examples of things you must consider in order to ascertain a business's risk. Riskier businesses attract lower multiples/valuations.§ Growth – does the company have profitable growth prospects? All things being equal, higher growth businesses attract higher valuation multiples. By comparison, businesses that are mature and have limited growth prospects attract lower multiples.The relationship between risk and growth are illustrated below.See hereFactors I consider when assessing a stock's relative valueBelow is a list of factors that I consider when assessing the relative value of a stock.§ PE multiple – relative to its historical levels, peer companies and the market in general.§ Profitability and dividends – I review historic cash flow, revenue, profitability and dividends to consider volatility and growth.§ Financial strength including cash holdings and debt exposure.These three measures usually provide a good, high-level indication of a stocks relative value.Using Woolworths as an exampleLet's apply these considerations to Woolworths (WOW) as an example:§ Its PE is trading at 32 times which is very high for a relative mature, low growth, low risk business. Its peer company, Coles is trading on a PE of 22.5 and Metcash (which operated IGA supermarkets) on a PE of 16 times.§ Woolworths' sales, cash flow, earnings and dividends have been quite stable over the past 4 years.§ It has a very strong balance sheet with low and reducing external debt levels.Overall, I assess Woolworths as a low risk, low growth business and would expect a PE ratio of 18-24 times to be fair value. Based on forward earnings, it suggests its shares are probably valued towards high $20's. Since its currently trading at over $39, it appears to be overvalued in my opinion.Examples of irrationalismApplying this fundamental analysis to some other stocks results in mindboggling outcomes. Here are a few irrational examples from Australia and overseas:§ Accounting software provider Xero is trading on a PE ratio of over 1,000 times!§ REA Group (operates realestate.com.au) is trading on a PE of over 60 times§ Afterpay is valued at $37 billion and lost almost $160 million last year (and has never made a profit).§ Uber is worth over $100 billion and lost over $9 billion last year!§ Tesla is worth over $1 trillion and is trading on a PE of around 400 times.High growth companies can be rewarding to invest in. However, there's no point in paying too high of a price for the stock, as all you are doing is pre-paying for whatever growthmight occur in the future. And if the growth doesn't occur, it will be your loss.Clearly some stocks are trading at unsustainable levels and should be avoided.Stock valuations are inherently uncertainStock analysts spend their whole working life analysing companies to identify investment opportunities. But most of them fail to beat the market. A superior share investment strategy is to adopt a rules-based approach, as these tend to offer a lot of diversification and very low fees. You can incorporate factor-based methodologies that allow you to avoid investing in overvalued sectors and companies.

You’ve no doubt heard the old joke about the guy who calls a pizza place to order a pizza over the phone. He orders a medium sized pizza with mushrooms and sliced tomatoes. The person taking the order asks whether they would like the pizza cut into 8 slices or 10, to which our trusty guy ordering the pizza says. Oh yes, cut it in 10, I’m hungry today. Yes, it’s an old joke, and not all that funny really. But, I’m guessing the guy who ordered the pizza must work for the Federal reserve. In a world of finite resources, of finite primary wealth, and of finite pizza, issuing more currency, or making smaller slices doesn’t create more pizza. It simply dilutes the value of each slice of pizza. OK. So we know governments are printing money like never before. According to modern monetary theory, we’re being told printing money will not be inflationary as long as it’s being done the right way. What will cause the next downturn in real estate? The world is filled with counter party risk. Quite simply, counter party risk is the result of an asset on one balance sheet appearing as a liability on someone else’s balance sheet. When the chain of financial dependence becomes too deep and too unstable, then you have a chain of dominos. Once one domino falls, then all of the dominos in the chain fall over. So the question is, where is the instability in the system? Where is the house of cards? Some have argued that the government is simply printing too much money and that’s the cause of the instability. If you’ve been listening to this podcast for a while, you’ll remember me saying that printing money works, until it doesn’t. When it doesn’t work, there’s no turning back. It’s a slippery slope, a runaway train. The only way back from that kind of slippery slope is a complete reset of the financial system. Some countries have tried cosmetic resets to the financial system. Venezuela’s recent attempt was to lop off five zero’s from their bank notes. In the end, that didn’t work, because they didn’t fix the underlying issue. It takes a commitment to stop printing money. We also see inflation when we look at asset prices. Stocks are trading at peak valuations; the average Price/Earnings ratio in the S&P 500, for example, is now 42, roughly 3x the historic average. It has only been higher two other times– just before the 2000 crash, and just before the 2008 crash. Bonds are so expensive that more than $13 trillion worth trade at negative yields. So let’s imagine that one day, stock traders wake up and realize that the prices being offered in the stock market for these companies don’t make sense. This has happened from time to time throughout history. We saw it on October 19, 1987. We saw it in 2001 after the dot com bubble burst. We saw it again in 2008 when it became clear that the US banking system was over-leveraged. A precipitous drop in stock market prices could cause a cascade effect on assets across the board. One of the warning signs is the amount of debt in the stock market. You might be wondering what I’m talking about. The stock market is an equity market. I’m talking about the margin accounts at all the major brokerage houses. When traders have high margin accounts and market prices fall, then traders need to sell assets in a hurry to cover their margin shortfall. That puts more downward pressure on the market. Let’s imagine that you are sitting on a lot of cash. Let’s imagine that you’re worried about inflation. That means your cash is going to be worth less a year from now, or two years from now, of five years from now than it’s worth today. Would you be willing to lend money for a long time at a low fixed interest rate? Or would you prefer to put your money into an asset that provides a more effective hedge against inflation?

Welcome to Finance and Fury. Today’s episode is lessons from the nifty fifties – bit of a history lesson as well as looking back to lessons that can be learnt from this, to help not make mistakes of the past. This is a particular bubble and market correct that most people wouldn’t be familiar with – especially when compared to the 1929, 1989, or 2008 crashes which were more world wide or a complete systematic risk This mini-bubble occurred in the US back in the 1970s – the term Nifty Fifty is an informal designation that was given for fifty popular large-cap stocks on the NYSE These shares were particularly popular in purchases between the 1960s and early 1970s This basket of shares was widely regarded as solid buy and hold growth stocks – they were essentially Blue-chip stocks - your large companies that were considered lower risk The group included names like Revlon, Procter & Gamble, Philip Morris, Pepsi, Pfizer, Merck & Co, Eli Lilly, Coca-Cola, IBM, Gillette, Wal-Mart, Disney, Eastman-Kodak, Xerox and Polaroid – a lot of these are still household-names today, although some, like Eastman-Kodak are no more Some academics credit these fifty shares as being the primary reason the US had a bull market of the between the 60s and early 1970s – But this then turned into a subsequent crash and underperformance of the market through the rest of the 70s and into the early 1980s It is interesting – because when you look at a market/index – depending on the weighted allocation of a basket of shares – the performance of the top 50 large shares on an index that has thousands of shares listed on it is more important than all of the other shares combined As an example – think about the ASX – the top 50 companies make up between 70- 75% of the market cap of the index If these shares have a negative 10% return, but the remaining 2,700 shares have a positive 10% return, results in a negative 5% return to the index – due the weighting of the index – where what is most important is that the companies that make up the most of it perform well Where this gets even more concentrated is on an index like the NASDAQ –55% of the index weighting is held in 10 companies – Apple, Microsoft, Amazon, Tesla, FB, Alphabet A & C, Nvidia, paypal and comcast NASDAQ has done pretty well over the past 10 years – thanks to the rise of companies like Apple, amazon and tesla – Similar dynamics were playing out back in the 60s – thanks to a handful of shares -the NYSE rose significantly We will go through what happened in detail – but it is an example of what may occur following a period during which many new investors start joining the markets, which are then influenced by a positive market sentiment, providing a feedback from further positive returns, ignoring fundamental market valuation metrics in the short term – then a trigger catalysis occurs and the house of cards crashes down   Starting at the beginning - the most common characteristic by the companies in the nifty fifty could be described as investor optimism -   Looking back in time on the Go-Go Years The 1960s were buoyant years for the US economy and stock market. From the mid-60s the term ‘go-go’ was used to describe an aggressive way of operating in the stock market, which involved trading for quick profits. Many of these companies were either providing solid earnings growth, or there was the expectations of solid earnings growth in the future This attracted a lot of attention and new Investors came to the market This is actually a key feature of the 1960s that could be easily overlooked – and that is that there was a massive increase in the number of investors in the US stock market Seven times as many Americans held shares by the end of the 1960s when compared to 20-30 years earlier - In the summer of 1970, the US Stock Exchange unveiled a survey showing the country had over 30 million shareholders – population of 200m – so 15% of the population – but it was previously only 4.3m when the population was closer to 150m – which is 3% of the population Chicken or the egg situation – was the rising market the reason for new investors, or were new investors the reasons markets were rising Probably a bit of both – whilst throwing in there the population growth and increased in accessibility to the market As a population grows – there are more people who can invest – as the access to invest increases, the number of people invested will also rise – but what incentivises these people to invest is to generate wealth – so a rising market can expediate these factors One of the major factors in this which shouldn’t be overlooked was the increase in access to the market that occurred in the 1960s due to innovation The decade saw the rise of the professional fund manager - It was the period in which managed funds started to be established and saw large fund inflows – by the mid-60s managed funds accounted for around a quarter of all transactions in the market and this only rose over the next 10 years Back in the 1960s – the influx of new investors had only ever experienced a prolonged bull market, another factor sustaining the bubble in the Nifty Fifty. Either way – what materialised by the 1970s is that each of the large cap shares started to carry extraordinarily high price–earnings ratios – a PE of 50x was relatively normal - far above the long-term market average The group included names like Revlon, Procter & Gamble, Philip Morris, Pepsi, Pfizer, Merck & Co, Eli Lilly, Coca-Cola, IBM, Gillette, Wal-Mart, Disney, Eastman-Kodak, Xerox and Polaroid – a lot of these are still household-names today, although some, like Eastman-Kodak are no more What was said by many investors back in the 1960s is that these shares should be bought and never sold - became the majority holdings in many institutional investor’s portfolio (managed funds) as well as in personal portfolios But then the issues started to emerge – the major problem was the Price/Earnings ratios being sustainable in the long term The price/earnings (PE) ratio is a valuation measure which compares the market price of a company to its earnings per share – you take the price and divide by the EPS The PEs of some of the Nifty Fifty moved into stratospheric territory as the 1960s progressed. By the early 1970s, the highest rated companies, darlings of the market, were trading on stunning valuations: Johnson & Johnson (57.1x), McDonald’s Corp (71.0x), Disney (71.2x), Baxter Labs (71.4x), International Flavours & Fragrances (69.1x), Avon Products (61.2x), Polaroid Corp (94.8x) and MGIC Investment Corp (68.5x). We might compare these valuations with those of the top holdings in the NASDAQ – Amazon is about 76x, Tesla is at about 1,000x, NVIDIA is about 76x, with the rest of the between 30-40 PE Some of these valuations are around the same – but some like Tesla exceed it to the extreme Enter the bear market of 1970s The long bear market of the 1970s which started to emerge – triggered by the 1973–74 stock market crash– this was a rather long one as it lasted until 1982 before markets started to recover – The issue with a very large segment of the market cap – concentrated in a few companies with very high PEs makes the market more fragile – If a market correction occurs, the companies that are overvalued can be sold off harder and faster – the crash in 1973 caused valuations of the nifty fifty to fall to low levels along with the rest of the market, with most of these stocks under-performing the broader market averages Similar to the rise of the market – if the largest segment of the market is overvalued and crashes – then this can drag down the whole index These shares didn’t all fall in tandem though - they were dropping one by one - some of the share price declines to 1974 lows were huge: Xerox (-71%), Avon (-86%) and Polaroid (-91%). The vulnerability of highly-rated companies to rising risk aversion was revealed – due to them starting on massive valuations in the first place There is one notable exception to this group – and that was Wal-Mart – which is the best performing stock on the list – has provided a compounded annualized return over a 29-year period of 29.65%.   But what happened to create such a drop in this segment of the market? It had been a long party for investors which had to come to an end – but there was no one cause – there was political instability with Nixon and Watergate, profit taking for investors, rising inflation I think one of the biggest contributors were rising interest rates, the end of the Bretton Woods monetary system and valuing growth – I’ve talked about the importance of interest rates and the yields on 10 year government bonds in previous episodes – this actually relates to one of the leading contributors for the market correction interest rates and discounting – the yields on the risk-free rate on a 10-year treasury – Say you have a company earning $100 today, but is forecasted to earn $200 in 10 years’ time When the risk-free rate is low – the discounting to present value for cashflows isn’t as severe – so why not hold out for that higher earnings in the future – but when the risk-free rate is higher, and discounting is higher as well – you start to care more about the cashflows today – in present value Take this example further – if the RF rate is 1% - and you have one company earning $100 today, but isn’t going to grow, versus another company earning $2, but is expected to grow at an earnings rate of 50% p.a. (which is huge for constant growth) – in 15 years’ time, which would have had the best free cashflow in PV? The company earning $2 today is worth around $2,303 of PV in cashflow, the company earning $100 is worth $1,386 – so the growth company is worth much more – but if the RF rate is 10.5% - they have the same PV in cashflow over a 15-year period Looking back on the risk-free rates – in the 1963 – 4% then started to rise, 1967 – went to 5.1%, 1969 – 6.7%, 1970 – 7.4%, 1975 – 8%, 1980 – 11.4% A lot of this had to do with the change in monetary system – and rampart inflation, so rates were pushed up to help combat this But had the effect of the valuation of companies starting to drop due to the discounting methods – so if you are a predicted growth company with a massive PE today – it isn’t good news for you Hindsight is 20/20 – and looking back, common sense suggests that many of these Nifty Fifty companies were in a classic investment bubble due to the investment flows and huge PEs - driven by what drives most bubbles - strong economic growth forecasts and plentiful liquidity (or money flowing into these companies) – pushes up valuations to unsustainable levels over the short-term This example does help to point out unrealistic investor expectations – and that nobody knows the future – what is the best company today may fall over tomorrow – people in the 50s and 60s probably though that polaroid was going to be the next big thing for decades to come – and it was – which is why it made the list – today it is a defunct company that filed for bankruptcy over 15 years ago and has been passed around in the private world, constantly losing valuation along the way Or even Xerox – Didn’t go bankrupt but has the same price today as it did in 1980. What to do with this information – these examples do help to highlight the dangers of a long, late-cycle bubble for equity investors – as there are some similarities to markets today – New investors – similar to the 1960s increasing the access to markets - the increase of Index funds and ETF access over the past decade has had a similar effect, but magnified – this has been magnified by the internet, the increase in technology allowing increased access to equities Back in 1970 – 15% of the population owned shares in the US – today it is 55% The average wealth has also increased – so the amount of money through all of these compounding factors – i.e. more people investing with greater sums of money has had a positive inflationary pressure on markets New investors have only known positive markets – increases the level of exuberance in markets Looking at listings – so many new ETFs coming to the market – we have only really known a bull market since 2012 – have been some corrections – but the markets ended up with positive years People jump into them without even thinking or without any knowledge of historical performance of the underlying companies Market valuations – these are very high at the moment and concentrated in many well know large cap shares which are considered house hold names, or long term buy and holds – but there are some risks to this Interest rates - Current interest rates - estimated to be around 0.9% for the risk-free rate In 2018 – was about 2.9%, in 2001 – was 5% - has the capacity to increase valuations for companies not currently earning anything but may someday through the roof – but still – the PEs in some companies listed on the market are 0 or negative If RF rates do go back up - Markets will start to care more about current income/cashflow in present value cashflow when the risk-free rates rise – covered this last week on the case for value shares Technology and adaption – many competitors may come out and what is natural in business cycles – when companies get too big, it becomes hard for them to adapt Even high-quality businesses can be poor investments if they are bought at extended valuations – like with a house – you can have a very nice house – but if you pay twice the market valuation – it may take you decades to get your money back if you were to sell Buying a great company at a fair price is better than a great company at a massive price In financial markets – there should always be a focus on capital preservation - consider the potential downside of any investment In my view – one of the best ways to do this in the current market is to not hold purely large cap companies – nature of markets over time to replace market leaders – Still focus on investing for the long term – whilst many of the nifty fifty crashed in the 70s due to their extreme levels of overvaluation - if you had continued to hold stocks such as Walmart, Coca-Cola or McDonald’s, from the 1970s peak until the present day - you would have still made decent returns But as always – important to diversify property – and not pay more than a company is worth – and take advantage of downturns Thank you for listening to today's episode. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/

My Favorite Chinese Stock Down BIG! Still Investing in Chinese Stocks? HUYA Price Earnings RLX Crash. I believe investors might be worried that similar events might happen with HUYA as what happened to RLX stock price. Overall Huya earnings were strong and still remain a top gaming live streaming stock. *A portion of this video is sponsored by The Motley Fool. Visit https://fool.com/josenajarro to get access to my special offer. The Motley Fool Stock Advisor returns are 605% as of 2/18/2021 and measured against the S&P 500 returns of 121% as of 2/18/2021. Past performance is not an indicator of future results. All investing involves a risk of loss. Individual investment results may vary, not all Motley Fool Stock Advisor picks have performed as well.*I have a position in HUYASUBSCRIBE TO 2ND CHANNEL:   https://www.youtube.com/channel/UCJvX23MIdSCqrnUH4H--UIQMerch:  Self-Taught Investor https://bit.ly/3dLJr6gDISCORD GROUP!! https://discord.gg/wbp2Z9STwitch: https://www.twitch.tv/josenajarrostocksTwitter: https://twitter.com/_JoseNajarroSome of the questions I want to answer What are the best high growth stocks to buy in March 2021? what growth stocks to buy in March 2021? What Cheap Stocks to buy? What are good top growth stocks to buy? Top Stocks to Buy Now-----------------------------------------------------------------------------------------DISCLAIMER: I am not a financial advisor.  All content provided on this channel, and my other social media channels/videos/podcasts/posts, is for entertainment purposes only and reflects my personal opinions.  Please do your own research and talk with a financial advisor before making any investing decisions. 

Everything you need to know about using the Price Earnings (P/E) Ratio for stock valuation: How to interpret P/E Ratio during stock / equity investing, Does a low P/E mean that a stock is under-priced and a high PE mean that the stock is over-priced, How should the P/E ratio be used, Should you use trailing P/E ratio or forward P/E ratio, What are the factors that impact a stock’s P/E, What decides whether the P/E ratio is high or low, Can you make a buy or sell decision based purely on the PE ratio analysis, and more. Show notes and transcript at:

Key Factors that drive higher PE Ratios for stocks --- Support this podcast: https://anchor.fm/dr-mahesh-agnihotri/support

In raising funding, valuation is a key number the CEO and investor must come to agree with. As a startup you must determine your target valuation. There are several methods. One method is the VC Quick Valuation Method This method starts with the exit of the startup. You assume the exit value your startup is being acquired for. You then work backwards to calculate what your startup must be worth now based on that target exit value. Here's the VC method by steps: 1. Estimate your exit value. Use simple exit value estimation using industry trends or estimate using Price/ Earnings multiples. 2. Calculate the post-money valuation 3. Calculate the pre-money valuation. 4. Finally, calculate the equity percentage owned by the investors. Remember, option pools can have a big impact on valuation Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding. Let's go startup something today!

Join Certified Financial Planners Greg Cooley and Bubba Labas as they explain the Price-Earnings Ratio in simple terms as it applies to investment picks.

Welcome to Finance and Fury Passive Investing is the Flavour of the day – Central banks entered the markets to provide a feedback loop Central banks Trying to create the wealth effect - Bernanke’s easy money policy was intended to boost economic growth by boosting shares as well - November 2010 he argued: “Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.” Think of a financial market as a forest – Aus seen some fires recently – arson can be a cause – but if the Greens won’t let burn offs, then throw fertilizers around and forests grow out of control – enter a dry period – small spark leads to massive fire that can destroy everything in its path – Tell-tale sign - lower volatility and the unprecedented magnitude of Central Banks’ interference in markets Peak Quantitative Easing - never before this high: $300bn+ monthly asset purchases, or annualized passive flows for $3.7trn globally - the ensuing rising mania for passive investment vehicles: the tulips of ETFs and passive   Where has a lot of the money has been going? Index funds, Risk Parity funds - two-thirds of which are trend-chasing - close to $8trn globally the ensuing capitulation of active investors who default to chase passive ones, as they fall prey to mental loops like ‘recency bias’ and ‘induction trap’ The Positive Feedback Loop between Fake Markets and investors creates System Instability, and Divergence from Equilibrium Many fashionable investment strategies these days are based on the easiest option – ETFs Creates a feedback loop - they successfully profit from an artificial set of variables – people buying ETFs pushes the market up - derives an artificial signal of future prices movements -   In circular reference, artificial markets feed, and are fed, by a crowding effect in high-beta long-bias in disguise. However - a downturn, they may likely play as hot money or weak-hands, exacerbating a down-move 90% of inflows are passive strategies – creating a bubble in some companies over others – if it is in the index, it is bought regardless of if it should be or not Weak hands are investors who are brought to like an investments by certain characteristics which are uncommon to the specific investment itself, such as its featuring a low volatility, diversification, and liquidity   ETFs - their meteoritic rise - ETFs oftentimes oversell liquidity and diversification, attracting swathes of unaware, unfitting investors in the process. Investors who are unlikely to stomach bouts of volatility, and who will likely exit prematurely upon them, thus exacerbating volatility. Furthermore, a growing body of research blames ETFs for reducing markets efficiency, creating stock markets that are both ‘mindless’ and too expensive. ETFs themselves represent a great financial innovation – became popular after 2009 in AUs - What one must consider though, is their implications for price discovery (do they make bubble/bust cycles more extreme?), liquidity (is liquidity overstated?), market responsiveness (is volatility depressed but tail risks – extreme drops - bigger?). Specifically to this market cycle, it is also worth asking what happens when the liquidity tide turns on QE ending, or when markets dive. Until then, the positive feedback loop implies that markets are helped rising by ETFs themselves, who are then rewarded with further inflows with which they can buy more. The more expensive valuations get, the more they disconnect from fundamentals, the more divergence from equilibrium occurs, the larger fat-tail risks become. To protect fees and in a bid for survival, many active investors capitulated and started pricing risk out of portfolios. A higher-beta, longer-bias ensued. As they are still rationally sensitive to valuations and risks in the macro outlook, they stand ready to switch when the moment comes.   The current state of markets - Twin Bubble – thanks to Quantitative Easing – The major risk is central bank tightening Twin Bubble - Bonds and Shares simultaneously- Markets have forgotten how much of current valuation is due to Quantitative Easing – around a time over the next few years QE in the US may be phased out The episode on bonds v shares - https://financeandfury.com.au/bullish-shares-versus-bearish-bonds-which-one-is-correct/ The ‘wealth effect’ failed – Printing money – making people feel rich and spend more - QE did not spur consumer spending, corporate profits, real wages, and inflation But did for financial assets – hard asset pricing in house and shares QE for risky assets: the liquidity tsunami that lifts all boats Central Banks, differently than in the past, may be less keen to save the day for financial markets, or less keen to do so for mild sell-offs (within -20%). They may even use a weaker stock market as a top-down rebalancing act. Market participants believing that Central Banks have their back may be mistaken. Biggest assets that have been risen – property and Passive/Index ETFs ‘Fake Markets’ are defined as markets where the magnitude and duration of artificial flows from global Central Banks or passive investment vehicles managed to overwhelm and narcotize data-dependency and macro factors. Artificial money flows. Central Banks flows, we live through Peak QE this year -> Passive Vehicles trade on Central Banks flows, outperforming active managers in the process -> More inflows for passive vehicles (mania) -> Active managers capitulating and joining in -> Retail joining in. All around, fitting economic narratives are formed to justify the dynamics of artificial markets: chasing yield (financial repression) -> chasing growth -> chasing earnings. If QE is the sea all around town, QE Tapering or Quantitative Tightening (‘normalisation’) is like navigating the sea towards the horizon. We know how that ends. We know it ends. The Positive Feedback Loop between Fake Markets and Investors creates System Instability and Divergence from Equilibrium Central Banks flows, markets are helped rise by certain classes of investors, which are then rewarded with further inflows, with which they can then buy more. The more expensive valuations get, the more they disconnect from fundamentals, the more divergence from equilibrium occurs, the larger fat-tail risks become. Many fashionable investment strategies these days are not un-contingent to the Fake Markets they operate within: ETFs - they successfully profit from an artificial set of variables, they cannot but derive as artificial a signal from it, and are bound to a life-cycle which is no longer, no shorter than the life-cycle of the Fake Markets themselves. Markets and investors then enter into a positive feedback loop, which increases the system instability, no different than what happens for positive feedback loops in cybernetics, chemistry, biology. The day artificial markets end, we can assume a reasonable chance that some or all of such strategies will face rough waves, and exacerbate a market downfall in the process. Take an upward trending market in low and decreasing volatility, as passive flows from Central Banks progressively crowd out active ones and interfere with price discovery. Price Discovery in markets is from active decisions to buy or sell based around company fundamentals – if everyone is buying the index – all companies in the index rise A long-bias on risky assets is a winner, so long that a major Central Bank commits to bail them out endlessly and supports them every single week with hard cash. A short-bias on volatility is also a sure winner, so long as such passive flows are sustained for. Crowding effect of high-beta long-bias in markets these days, hidden in plain sight. As this bias is both passive and not presented as a long-only investment, we can safely assume for it to be comparable to ‘hot money’ flows and ‘weak hands’. When the tide turns, it will move along fast, helping markets overshoot. Liquidity – two-fold Passive investors have no cash buffers Cumulative flows into passive investments – selling ETFs very hard - Finding a seller Signs of complacency and disconnect from fundamentals abound. So to sanity check, it may still be helpful to periodically remind ourselves of a few recent ones. In no particular order: Argentina uses defaults as a recurrent macro-prudential policy, to tackle debt overloads from time to time. Most recently in 2014, 2001, 1989. Yet, this year, the country issued a 100-year bond for 7.9% yield. Red-hot demand. It was oversubscribed 3.5x. Similar levels of complacency and expensiveness are not uncommon in financial history. Amongst others, 1999 and 2007 come to mind, where expensive valuations match raced with low levels of realised volatility. In both instances, complacency was breeding an unstable market environment, where gap risks eventually materialised. Across financial history, complacency and Zero Volatility bring about expensive valuations. In terms of Price/Earnings multiples (Shiller CAPE, adjusted for the cycle and inflation over a 10-year period), the US equity market is only cheaper than the markets of 1929 and 2000: in both instances, large downside loomed ahead. The Bank of Japan now owns almost 75% of the entire Japanese ETF equity market. As a result, the BoJ will likely be the major shareholder in 55 companies by the end of 2017 - To entrench firm buy-the-dip reflex in the investment community (and their algos), “the BOJ’s ETF purchases help provide resistance to selling pressure against Japanese stocks,” says Rieko Otsuka of the Mizuho Research Institute The Swiss National Bank bought $100bn between US and European stocks. It now owns 26 million Microsoft shares (read). Leverage to buy stocks at the NYSE (margin debt) hit an all-time record of $549bn this year - doubled up since 2009. Easy monetary policy and bubble valuation in risky assets may similarly be at their endgame. A few more moves are left possible, but the degrees of freedom imploded, all the while as system pressures mounted on fragile markets.   Thanks for listening, if you want to get in contact you can do so here https://financeandfury.com.au/contact/  

P/E-talet är den absolut vanligaste multipeln på börsen och anger hur många gånger årsvinsten man betalar för en aktie (Price/Earnings). Hundraårssnittet på börsen är 14-15x men vad är egentligen en hög prislapp och hur förhåller man sig till vinsttillväxten? I denna episod backar jag tillbaka till 12 juli 2007, dagen innan finanskrisen, och kikar på vilka bolag som trots den värsta finansiella krisen i modern tid lyckats få sina aktieägare att skratta hela vägen till banken. Ska man verkligen avstå en investering pga. en hög värdering trots att framtidsutsikterna är goda? I detta avsnitt kikar jag närmare på bolagen som trotsat börsens tyngdlag och krossat motståndet med ursinniga uppgångar, trots höga värderingar. Är det verkligen så svårt att hitta vinnarna eller skapar vi ursäkter i efterhand? Det är en fråga att klura på hemma på kammaren. Hoppas du har en underbar sommar, Nicklas

THE 3 PROFITS of the INCOME STATEMENT…do you know them? Yes, understanding Financial Statements is an essential business skill. In this Podcast we continue our deconstruction, decoding and deciphering of the key financial statements. Last episode we dug into the Balance Sheet. I hope you found that episode insightful. If you haven’t heard it yet no worries, check it out when we finish here! This Episode is about the INCOME STATEMENT. The Income Statement goes by many other names and aliases, Profit and Loss Statement, the P&L, Revenue Statement, Statement of Financial Performance, Earnings Statement or Statement of Earnings, Operating Statement, or Statement of Operations…geeezzzz, enough already, if one name wasn’t hard enough to remember. I’ll stick with calling it an Income Statement, but my lenders and banker’s always ask me for our P&L. Of all the financial statements this is the one you are probably most aware of and check because is contains one number everyone wants to know…. THE BOTTOM LINE or NET PROFIT. This number is the easiest to locate, because it’s at the bottom line of the Income Statement. You probably dash there when the reports arrive, eager to see how the practice did. Hopefully you don’t find a number bracketed by parentheses signifying a loss. What’s up with that? That doesn’t make any sense, how can one have negative money? You know there is money in the bank account because you just checked! You say to yourself I never understood those dagnabnett accounting reports and financial statements any way and carry on with business as usual. If there is a BOTTOM LINE, there must be a TOP LINE…correct you are! And a MIDDLE too! So let’s starting deconstructing the INCOME STATEMENT! An Income Statement contains three sections: TOP LINE: shows you your total REVENUE or SALES SIDE BAR here, when business folks talk of TOP LINE GROW, that’s secret code for sales growth, plain and simple. MIDDLE SECTION: reveals your COSTS and EXPENSES broken down by category. BOTTOM LINE: shows your NET PROFIT or LOSS; which is REVENUE - EXPENSES. It’s that simple, and as we learned in the Balance Sheet Podcast, it’s the NET PROFIT that connects the INCOME STATEMENT to the BALANCE SHEET since it is added to the RETAINED EARNINGS section of the BALANCE SHEET. An income statement is much like a report card. It is always calculated over a given time period, typically one month. Understanding this, we can better see that the income statement affects the balance sheet much like how an individual grade affects your GPA. The RETAINED EARNINGS section of the balance sheet accumulates all of the profits or losses in the business. This is a critically important point to highlight and understand for it is how the BALANCE SHEET and INCOME STATEMENT are connected. So, back to the most important feature of the INCOME Statement, the calculation of PROFIT! Your MISSION, should you choose to accept it, is to Learn what all the line items on the income statement are, and how to manage them. With this knowledge you will know how to improve and contribute to the profitability of your firm. The income statement measures how profitable your products or services are when everything is added up! Remember, the bottom line Profit number is always an estimate, since estimates and assumptions sneak into some of the line items of the income statement. Just as important is the fact that PROFITS are NOT CASH! You can’t spend PROFIT, you can only spend CASH. We will look in greater detail at CASH in the next podcast on the STATEMENT of CASH FLOWS. Overtime, in a well run and managed firm, PROFITS will turn into CASH! Let’s deconstruct our INCOME STATEMENT a little further. We will start at the top line of the income statement - REVENUE or SALES. A critical element here is when is REVENUE RECOGNIZED or RECORDED. For listeners that are using a Modified Cash Basis Accounting System, then this is easy…your REVENUE is the total Payment from all sources, typically patients and insurance and is RECOGNIZED only when payments are received! For other firms and publicly traded companies that are required to follow GAAP accounting rules, REVENUE RECOGNITION can be more challenging. Let’s keep it simple for our purposes and say that a company can record a sale, or recognize revenue, only when it delivers a product or service to a customer. This is an area where accountants have great discretion and latitude, and where estimates and distortions can sneak in. For Revenue to be recognized it must have been EARNED, either a product shipped, or service work performed. The next section of the INCOME STATEMENT, the Middle Section details all your COSTS and EXPENSES. EXPENSES are divided into 2 distinct categories: Cost of Good Sold (COGS), or Cost of Services (COS) and Operating Expenses, also referred to as Sales, General, and Administrative Expenses (S,G&A), or just G & A for General and Administrative. The COGS or COS includes all the costs directly involved in producing a product or delivering a service. Typically this includes the wages of employees making a product or delivering a service and the materials or supplies used. This distinction between COGS/COS and OPERATION EXPENSES also serves as a dividing line on the income statement. You may hear executives and managers talking about ABOVE THE LINE and BELOW THE LINE. Well, this is where the line is! ABOVE THE LINE there are only 2 items, REVENUE and COGS or COS this is the GROSS MARGIN you hear “Mr. Wonderful” asking about on Shark Tank, or Marcus Lemonis preaching about on The Profit. BELOW THE LINE, we will learn next, are OPERATING EXPENSES, INTEREST, and TAXES. Why is this distinction important? Well, the items ABOVE THE LINE tend to vary more in the short term so attract more attention from managers. So, if an EXPENSE is NOT a COGS or COS then it is an OPERATING EXPENSE and appears BELOW THE LINE. These OPERATING EXPENSES are NOT directly related to making a product or delivering a service. OPERATING EXPENSES are often referred to as OVERHEAD and includes such items as rent, utilities, telephone, internet, advertising, marketing, IT, etc. Buried in OPERATING EXPENSES is DEPRECIATION and AMORTIZATION. This is an area of great confusion so let’s take a closer look at this. The first point to remember is that DEPRECIATION is treated like an EXPENSE, so can dramatically affect the PROFIT on an INCOME STATEMENT. Plain and simple, DEPRECIATION is the “expensing” of a physical asset over its useful life. AMORTIZATION is the same as DEPRECIATION but applies to INTANGIBLE ASSETS like GOODWILL. There is considerable latitude and methods for how one can depreciate ASSETS, consultation with your ACCOUNTANT is critical here. Remember too that even for the same firm, DEPRECIATION can be calculated differently for TAX accounting vs. GAAP accounting. I won’t bore you with the details here, just appreciate that DEPRECIATION can be calculated in many different ways! DEPRECIATION is the best example of what we call a NON-CASH Expense! So, what’s up with that? This is one of the most confusing and misunderstood areas of your financial statements, but critical for you to understand. The key to unlocking this confusing concept is to remember that the CASH for the asset has already been paid out! The vehicle or piece of CAPITAL EQUIPMENT was paid for at the time it was acquired, but the total expense was not recorded in that month. Instead, the expense is divided, or allocated, over its useful life….a little at a time, month by month! That’s DEPRECIATION. Again, it is important to understand there are many ways to calculate the depreciation expense. The method chosen can have a profound impact on your PROFITS reported on the INCOME STATEMENT. KEY POINT HERE! Good financial managers will match the use of an asset, or its depreciation, with the revenue it is bringing in. If the depreciation exceeds its revenue then this asset is creating a loss, if revenue exceeds its depreciation , the asset is returning a profit, a goal we should be striving for. Next, let’s look at the 3 profits; Gross Profit, Operating Profit and Net Profit. GROSS PROFIT is REVENUE minus COGS or COS , and is a key number. It tells us about the profitability of your product or service. If profitability is not achieved here it is unlikely that your business will survive long. GROSS PROFIT must be enough to cover OPERATING EXPENSES, TAXES, FINANCING and of course NET PROFIT. So what is a healthy Gross Profit? How much is enough? This will vary considerably by industry and from one company to another even in the same industry. Having metrics and reports that allow you to follow year-to-year trends will help you identify whether your profit is heading up or headed down. If Gross Profit is decreasing one needs to ask why. Are your COGS or COS rising? Is Revenue decreasing due to lower fees, discounts, or lower insurance fee schedules? Understanding why helps managers determine where to focus their attention. OPERATING PROFIT is GROSS PROFIT minus OPERATING EXPENSES, including DEPRECIATION and AMORTIZATION. This is also know by the odd acronym EBIT (pronounced EE-Bit). This stands for EARNINGS before INTEREST and TAXES. Why are interest and taxes not included you may ask? OPERATING PROFIT is the PROFIT a firm makes from running the business. Taxes don’t contribute to how well you run your business. And interest expense depends on how the firm is financed, i.e., with debt or equity which is termed its CAPITAL STRUCTURE. EBIT is a closely watched metric since it is a good gauze of how well a firm is being managed. Another metric is EBITDA (EE-bid-dah), which is Earning before interest, Taxes, Depreciation and amortization. This is thought to be a better measure of a firm’s operating efficiency since it ignores NON-CASH Charges like depreciation and amortization altogether. We have just reviewed the bias and distortions that can be introduced calculating depreciation, so with EBITDA it is ignored. Finally we have arrived at the BOTTOM LINE, or NET PROFIT, which is what’s left over after everything is subtracted, COGS/COS, operating expense, non-cash expenses, interest, and taxes. This is the same number used to calculate EPS, earnings per share, and the PRICE/EARNINGS ratio used on WALL STREET. Finally, if the INCOME STATEMENT calculates our PROFIT, then it is logical to ask how can we MAXIMIZE OUR PROFIT? That’s a great question. My friend, Jason Andrews in his new book, STARK NAKED NUMBERS, provides us a great and quick analysis of this topic. Quick side bar here, Jason is a Chartered Accountant, who like me, is passionate about business owners extracting value from their financial statement data. You can find his book on Amazon and I will include a link in the show notes for you. I receive no royalties from this endorsement. Please check out his fresh perspective on accounting and finance. Jason identifies several financial levers which one can use to increase profitability; the SALES LEVER; either increase sales volume or increase price, and the COST LEVER; reduce DIRECT and/or INDIRECT COSTS. It is surprising the impact on profitability a 10% change in these levers has on NET PROFIT…listed from greatest impact to least impact and the % change are; Sales Lever, Increase price 10% increases net profit 53%. Direct Cost, decrease 10% increase net profit 37%. Operating Cost, decrease 10% increase net profit 26%. Sales Lever, Increase Sales 10% only increases net profit 16%. So the fastest and easiest way to increase your BOTTOM LINE is to INCREASE YOUR PRICES/FEES. Creating more business, or increasing sales, has the least effect. Let’s wrap this PodCast up with some useful take away points. Only When REVENUE from Services exceeds EXPENSES can profit be achieved. Buying gadgets, gizmos, latest and greatest equipment, a new office, the list can go on and on are all irrelevant, EXCEPT if the gadgets, gizmos, latest and greatest equipment and new office creates GREATER REVENUE, or LOWER EXPENSES. This is also called VALUE CREATION when the PRICE a customer is willing to pay is greater than the COST to make the product or deliver the service. VALUE, like PROFIT, can only be achieved when products are sold and services delivered. The #1 GOAL of any BUSINESS is to CONTINUOUSLY CREATE VALUE for their CUSTOMERS! The hardest part is the CONTINUOUS and CONSTANT need to always be CREATING VALUE! ACCELERATING DEPRECIATION, as in SECTION 179 depreciation we are all familiar with, creates a LARGE DEPRECIATION EXPENSE that reduces your PROFITS, NET INCOME and RETAINED EARNINGS. This is a TAX STRATEGY plain and simple and points out the difference between TAX ACCOUNTING and MANAGERIAL ACCOUNTING. Planning for this DEPRECIATION should be done every time capital equipment is acquired, NOT AT THE VERY END OF THE YEAR at the encouragement of highly motivated SALES PERSONAL. OVERHEAD PERCENTAGE is a metric that dentists can not stop talking about and comparing! As you see from the above discussion, there is no OVERHEAD LINE ITEM on an INCOME STATEMENT. OPERATION EXPENSES come close but what items do you include or exclude? There are as many variations in calculations as there are people calculating it. For me it is a non-precise metric that can be distorted. A better metric to monitor and tract overtime is GROSS PROFIT and OPERATING EXPENSES as a PERCENT OF GROSS PROFIT. Whatever metric for overhead you choose, it becomes more powerful when tracked and compared overtime. PROFITS are not CASH. A profitable firm can run out of cash and a cash rich firm can non-profitable. So that wraps things up for this Podcast.  Hopefully you have a better understanding of the mechanics of the INCOME STATEMENT. We hope that this information has created a few “Ah Ha” moments, or stimulated some additional questions you can direct to your advisers or accountants.  We welcome your inquiry here too at OmniStar Financial.  Our contact information can be found at our website OmniStarfinancial.com  .  You will also find a link to sign up for our newsletter.  Please share this podcast if you found it helpful, and leave a review on iTunes too.  We welcome your feed back and suggestions for future podcast sessions.  You can always find me, your host, david darab, at my twitter handle, @ddarab. Thank you so very much for tuning in and listening.  We are very grateful for your time and attention and so very pleased to have you in our audience. REFERENCES: Financial Intelligence, Revised Edition: A Manager’s Guide to Knowing What the Numbers Really Mean: Karen Berman, Joe Knight, John Case: 8601406238220: Amazon.com: Gateway Stark Naked Numbers: Uncover Your Financials, Unlock Your Cash, and Unleash Your Profits: Mr Jason Frederick Andrew: 9780648424000: Amazon.com: Books

This is the final episode of our short 'pardon the jargon' series, and we're focusing on an individual company level. When analysing an individual company you'll often come across terms and metrics that are not clear. We're hoping to make it slightly clearer in this episode today. In this episode you will learn: • What the term Market Cap means and how you can calculate it • How to understand Earnings and Earnings per Share • What Trading Volume measures • How you should understand the Price/Earnings ratio and what it tells you about the price of a company Stocks and resources discussed: • Equity Mates Investing Glossary

In thís episode you'll learn: why celebrating high stock prices is wrong why next year's, any year's, Price/Earnings ratio is irrelevant that one strategic shareholder selling to another rarely means anything useful ... and a few more things, Mikael Syding picked up on his way from total beginner to the head of The European Hedge Fund Of The Decade.   * Subscribe to Future Skills on: iTunes | Android | Stitcher | Spotify * Leave a review on iTunes to help us reach more people. * Join our newsletter for weekly summaries of the episodes.  * Apply for the Future Skills Program Email us at admin@futureskillspodcast.com  

If you catch a snippet of the radio in the morning on your way to work, you’re likely to hear what happened to the Dow Jones overnight. If you read your news online or watch the news on TV it’s likely you’ll hear about the All Ords or maybe the ASX200.  You might even come across acronyms like the NASDAQ and the FTSE. Probably, you know this is something to do with share markets. If you turn your mind to it a bit more, you probably know that the share market is where people buy and sell shares in companies like Telstra or BHP. Maybe you have in mind that the share market is risky and people lose their money sometimes. Well, if this is about the extent of your share market knowledge, you’re not alone, and this episode’s for you. I think it’s fair to assume that you have an interest in achieving financial independence.  That is what we’re all about here. In working towards that goal, building wealth is likely to be an important feature. With wealth you can generate investment income with which you can then live on. Or perhaps you can use that wealth to buy a business, or invest in starting a new business if that’s where your Financial Autonomy goal points you. Or perhaps Financial Autonomy for you means remaining as an employee in a business with a team of people that you enjoy being around, but with the financial resources to resign if ever management changed or something else happened that meant you no longer enjoyed coming in each day. The goal of this audio blog is to provide you with choice in life, and that sort of goal is a common one I see with many of my clients.  Being in a position to say no.  It’s very empowering, and very liberating. One avenue towards financial independence is to build wealth via investment in the share market.  I should make it clear here that what I’m talking about is investing, not trading.  If you’ve listened to the common investment mistakes series you will recall I covered off on the dangers of trying to be a share market trader.  In short, it’s an almost guaranteed way to get poorer. So we’re talking about investing.  Buying shares that you intend to hold for at least a year, and profiting from both the dividend income, and growth in the value or price of the share over time. There are different ways you can gain exposure to the share market.  Your super fund likely has at least some exposure right now.  Later I’ll look at a couple of options for your non-superannuation money, but let’s start by explaining a few of the terms and elements you will come across when you take an interest in investing the share market. There a multiple markets We refer to the share market like it’s one thing, but that’s not true.  All developed countries have their own share market, and some such as the US have multiple markets. There are 60 major stock markets around the world.  There’s a good infographic on world share markets here. Technology is gradually bringing these markets together in a practical sense for investors, but for the moment at least, as an Australian, if you want to buy shares in Apple let’s say, it’s not easy.  Why?  Because Apple isn’t listed on the Australian share market, and it’s not straight forward for an Australian investor to invest in the US share market (where Apple is listed) directly. Our local market is called the ASX. The Australian Stock Exchange.  Should be ASE really shouldn’t it, but presumably someone felt the X looked trendier. On the ASX you’ll find lots of companies you’re familiar with – the banks, the big miners, Woolworths, Telstra, etc.  Of course there’s also plenty there you’ve never heard of too.  About 2,000 companies all up I believe. In the United States the main market is the New York Stock Exchange.  This is the largest share market in the world. On the NYSE you’ll find companies like Johnson & Johnson, Exxon Mobil, AT&T, VISA, and Pfizer. The second largest share market in the world is also in the US – the Nasdaq.  This market tends to be more technology focused, so Apple, Amazon and Microsoft are listed here. There’s also the London Stock Exchange and on and on it goes – typically one per country. You’re buying a piece of a company The next thing to recognise is that when you buy a share, you are buying a small piece of a company. Let’s say you buy a share in JB HiFi.  You are now a part owner of that business. If that business performs well, you will get a share of the profits.  If it grows and becomes worth more, the value of what you own will also rise.  Of course if things go badly – maybe Amazon enters Australia and JB HiFi loses a whole lot of customers, then the business might decline, and so the value of your little piece of the company will do the same. As a part owner you have the right to attend the company’s annual meeting and vote on issues like who should sit on the board of the company. I sometimes have clients tell me that they prefer property investment to share market investment because they can touch a property.  It’s a physical thing.  They don’t feel that with shares. Whilst I can understand that, if you think of the share you bought as a small piece of a company, then you can generally find something physical to attach to that.  Walk into the JB HiFi store.  You own a little bit of this.   Blue chip If you start to take even a passing interest in share market investing you will soon come across the term “blue chip”.  So what does it mean? A blue chip share is a large, high value company.  The expression is usually meant to infer that it’s a company that is so big it will never go broke.  In Australia, the big 4 banks, BHP, RIO, Telstra, Woolworths, Wesfarmers - these are all businesses that would typically be described as blue chip. There is no formal definition of a blue chip company, and you won’t see that as a descriptor on the ASX anywhere. Interestingly, the term blue chip apparently comes from poker, where the most valuable chip was traditionally blue. What to buy So let’s say you’ve decided to dip your toe in the water and buy some shares.  How do you decide what to buy?  Well of course you could come to us for advice, but perhaps initially you just want to have a small go yourself to gain some experience – a great idea. Some important numbers you might come across in your research are the dividend yield and the price earnings ratio.  You’ll come across these numbers in the newspaper and on most share trading websites.  So let’s take a quick look at what these mean. Dividend yield – this is the income rate of return from the share and can be compared against bank interest rates to make it meaningful. Resources companies such as BHP typically pay quite low dividend yields of around 2%, because they tend to pour a lot of their profits into expansion of the business, rather than paying out dividends. The banks on the other hand are more generous, usually paying 5-6%. And then there’s franking credits on top, but that’s for another day. Price Earnings ratio – Commonly abbreviated to the PE, this is a ratio of the price of the share, divided by the earnings per share. So if company XYZ was trading at $10, and in its last earnings notice it declared earnings of $1 per share, then the PE would be 10. That is, its price is 10 times its earnings. Most companies trade on PE’s of between 10 and 20 times. I find PE’s are most useful when comparing companies in the same industry, e.g. the banks, to see which banks the market is rating more highly than their peers. A high PE often reflects an expectation that earnings will grow strongly in the future. In contrast a PE under 10 typically suggests that the market anticipates earnings will decline in future. As an investor you can consider whether you believe the market assessment is correct. Importantly both these statistics relate to the share price on that day. If you already own the shares, and purchased them at some other price, it has no relevance, I guess unless you are thinking of selling. It is also important when considering both of these measures to remember that the earnings numbers they are working off are historical, backward looking – nothing is certain in the future. How else to get started with investing the share market So you’re keen to invest, but don’t really want to get into the nitty gritty of choosing and monitoring shares yourself.  Or maybe you’ve done a bit of that already and decided it wasn’t for you. Fortunately for you, most investors who build wealth in the share market don’t personally do the research, buying and selling.  As happens within your super fund, most people invest via a pooled fund where your money is combined with others and a process is used to spread your investment over many shares to reduce your risk. The most common way to achieve this is through either a Managed Fund or an Exchange Traded Fund (ETF). The difference between the two is that with a managed fund you apply to invest directly with the fund manager, quite possibly through an adviser.  And when you want to take your money out, you similarly apply to the fund manager for a redemption. Exchange Traded Funds however are bought and sold on the stock exchange.  This means you can buy and sell more quickly, but it also means you will need to pay some brokerage to your stock broker each time you do so. Another difference is that typically an Exchange Traded Fund is replicating a particular index, such as for instance the ASX200 – the largest 200 companies on the Australian Stock Exchange.  The composition of the portfolio within an Exchange Traded Fund is therefore determined by some sort of mechanical, computerised type process. Whilst some Managed Funds have this investment style too, more often Managed Funds will have a team of people doing research, and making buy and sell decisions based on this research.  Within the industry this is known as Active investing, whereas the approach used by most ETF’s is Passive investing. There is much debate within the investment industry as to whether Active or Passive approaches are best, and in my view each have their place.  But an important thing for you to understand at this point is that ETF’s are usually cheaper than Managed Funds with respect to the management costs associated with running them, and this is because their process for selecting which shares to buy doesn’t require research and analysts. The ETF market is growing increasingly popular, leading to considerable new product development.  Given ETF’s are usually cheaper than their managed fund counterparts, this development is likely to be a positive for share market investors.  

About a year ago, Simon and I had lunch. I was about to go on holiday and there may have been some wine. During the course of the conversation Simon mentioned something about Sygnia and the price-earnings ratio. I didn't really have any idea what he was talking about, so I made a note to turn it into a Fat Wallet episode. Since that lovely encounter, we've had so many Fat Wallet questions that just always seemed more pressing. I regret not getting to this sooner, because it turned out to be super interesting. The price-earnings ratio is a way to work out how many years it will take to make your money back when you buy a share. That, along with a company's net asset value (NAV) and cash flow can help you work out whether a share is cheap or expensive. This is one of those episodes where you can practically hear the gears grinding. Hopefully you got the “A-ha!” moment too. Kris

Dr. Daniel Crosby is a psychologist, behavioral finance expert and asset manager who applies his study of market psychology to everything from financial product design to security selection.  Daniel is author of 2 books - The Laws of Wealth: Psychology and the secret to investing success and You’re not that Great. He is co-author of the New York Times bestseller Personal Benchmark: Integrating Behavioral Finance and Investment Management. Dr. Crosby is founder of Nocturne Capital. His ideas have appeared in the Huffington Post and Risk Management Magazine, as well as his monthly columns for WealthManagement.com and Investment News. Daniel was named one of the "12 Thinkers to Watch" by Monster.com, a "Financial Blogger You Should Be Reading" by AARP and in the "Top 40 Under 40" by Investment News. Daniel was educated at Brigham Young and Emory Universities. You can check out the show notes for all the links, books and resources mentioned in this episode at www.economicrockstar.com/danielcrosby

The p/e ratio is one of investing's most widely quoted numbers notes Tim Bennett. Here he explains how it works and what it can reveal about a share.