Asset Class Valuations in a Historical Context
June 15, 2021: Amid apprehensions about current valuations and their impact on prospective returns, we look at cash yields for various asset classes over time and relative to one another.
A Lopsided Crisis
The economic impacts of the coronavirus crisis are extremely uneven. Estimates of free cash flow for stocks in hard-hit industries are down 90%. The free cash flow estimates for the remainder of the market have held nearly steady, down just 5% over the same period.
March 2020: Interim Update to Investors
While market prices, in theory, should reflect the discounted value of a very long stream of future cash flows, they are prone to panic and often overreact to near-term disruptions. The current environment, brought on by worries of the spreading COVID-19 disease, seems like exactly such an instance.
Value Failed Because it was Expensive
So-called “value” indexes have severely underperformed the broader stock market for more than a decade. While this is an often-told story, it typically comes without any compelling explanation of why these indexes of purportedly inexpensive stocks continue to disappoint.
Regional Equity Performance & Valuation
The U.S stock market has significantly outpaced major international indexes over the past decade. In this short paper, we look at the drivers behind this by splitting price gains into fundamental and valuation components.
Buffett Abandons Book Value
We relate Warren Buffett’s recent comments on book value to our own investment process and make the case that investors buying a “value” index might, unintentionally, simply be taking on exposure to asset-intensive sectors rather than truly under-priced securities.
FAANG Valuations: A Mismatch of Old Metrics and New Companies
The group of stocks known as the FAANGs (Facebook, Apple, Amazon, Netflix, and Alphabet) have garnered significant attention from investors and market pundits—often painted as a homogeneous, overvalued set of stocks. We provide our view of the stocks.
