I have written before about how education trains us to think in a specific way. Back then, I mentioned that I like to follow the maxim of Carl Jacobi to “invert, always invert”. By teasing out from market prices the assumptions needed to justify these prices, you can learn a lot about these prices.
The ‘reader that asked’ wishes to thank the author! Although the ‘drop in stock markets since 19 February 2020’ surely must be a typo. I suppose it’s 2 April as in the table.
Now that Trump has rolled out Big Bertha – when he blinks (and blink he will, my bet is before Easter) who will take him seriously on _anything_? Pootin and Xi probably never did, and the EU, Carney and Sheinbaum will certainly follow. I fully expect this to be recalled as an ‘inverse Roosevelt’ (as in, ‘speak softly and …’).
Musk already expressed his preference for no tariffs between EU and US. Today, Bill Ackman tiptoed away. Interesting times indeed. Let’s all sit on our hands.
this is very comforting, thank you JK! Once burnt, always thinking of 2008, which is probably not healthy, so I enjoy reading such relaxed analyses.
One wonders how the Morningstar "US Market Fair Value" rating was in 2002, and in 2008.
No matter whether evaluating real estate or stocks, I like to look at yield. And with equities such as CME yielding over 11%, or Fresenius Medical over 8%, or Norsk Hydro over 13%, it seems another 20% losses in the stock market would create some generational opportunities.
The Great Depression was (also) about a global tariff war, but nothing like that seems to be happening today. Ex-USA, trade flows look alive and kicking.
True, but this is just a back of the envelope calculations. We doubt these inputs every time there is a crisis (this is why there is a crisis), but in the end, we tend to always revert back to similar numbers than before. It was like that in 2008 and again in 2020.
I like the concept of invert thinking very much but one question: the drawdown implies 2-3 years of no growth. Does that mean stable earnings/dividends? For me the scenario of no earnings (growth of minus 100) looks way harder than no growth/stable earnings so I wonder how 7 years of no earnings equal 2-3 year of no growth.
The no-growth scenario means that earnings and dividends don't grow and then start growing again from a lower base. The no-earnings scenario means no dividends for a couple of years, but then the dividend gets reinstated at the level it would have been if there had been no pause in dividends. This means that once dividends get reinstated, they start at a higher level than in the no-growth scenario, which explains why the no-growth scenario is harder.
Thank you for sharing this.
Last time you wrote the piece right in the week of the bottom of the sp500
MORNINGSTAR.COM provides a visualization of its fair value calculation of the broad market
https://www.morningstar.com/markets/fair-value
Everybody gets lucky sometimes. Don’t expect me to be this lucky all the time.
when was the last time?
Sorry I meant the covid
The ‘reader that asked’ wishes to thank the author! Although the ‘drop in stock markets since 19 February 2020’ surely must be a typo. I suppose it’s 2 April as in the table.
Now that Trump has rolled out Big Bertha – when he blinks (and blink he will, my bet is before Easter) who will take him seriously on _anything_? Pootin and Xi probably never did, and the EU, Carney and Sheinbaum will certainly follow. I fully expect this to be recalled as an ‘inverse Roosevelt’ (as in, ‘speak softly and …’).
Musk already expressed his preference for no tariffs between EU and US. Today, Bill Ackman tiptoed away. Interesting times indeed. Let’s all sit on our hands.
Thanks. And yes, that is supposed to say 2 April
2025. Manic day…
Please link the Ackman 180! I need some escapist entertainment.
Ahem. Bill reads this substack (humblebrag), so I won't do that.
Don’t get over-excited. I said ‘tiptoe’. Definitely not a 180 or running for the emergency exit.
It’s a tweet with 12.5m views. So should be safe to link it here:
https://x.com/BillAckman/status/1908992002366292286
the Ackman 180 is a good read. And Nouriel Roubini's response... is high theater.
this is very comforting, thank you JK! Once burnt, always thinking of 2008, which is probably not healthy, so I enjoy reading such relaxed analyses.
One wonders how the Morningstar "US Market Fair Value" rating was in 2002, and in 2008.
No matter whether evaluating real estate or stocks, I like to look at yield. And with equities such as CME yielding over 11%, or Fresenius Medical over 8%, or Norsk Hydro over 13%, it seems another 20% losses in the stock market would create some generational opportunities.
The Great Depression was (also) about a global tariff war, but nothing like that seems to be happening today. Ex-USA, trade flows look alive and kicking.
The issue is that at this point we are not sure that the either the future rate of growth or valuation premium (for US) still hold
True, but this is just a back of the envelope calculations. We doubt these inputs every time there is a crisis (this is why there is a crisis), but in the end, we tend to always revert back to similar numbers than before. It was like that in 2008 and again in 2020.
I like the concept of invert thinking very much but one question: the drawdown implies 2-3 years of no growth. Does that mean stable earnings/dividends? For me the scenario of no earnings (growth of minus 100) looks way harder than no growth/stable earnings so I wonder how 7 years of no earnings equal 2-3 year of no growth.
The no-growth scenario means that earnings and dividends don't grow and then start growing again from a lower base. The no-earnings scenario means no dividends for a couple of years, but then the dividend gets reinstated at the level it would have been if there had been no pause in dividends. This means that once dividends get reinstated, they start at a higher level than in the no-growth scenario, which explains why the no-growth scenario is harder.