OPINION: Nobody knows where stock prices will be at the end of the year. But a range of plausible assumptions about the future cash flow from stocks indicates that it is highly likely that the intrinsic value of the S&P 500 is above its market price.
It’s been another terrifying time for U.S. stock-market investors — the S&P 500 SPX, -0.08% suffered its worst first-half for any year since 1970. Where do we go from here?
Having lived through 1929’s Great Crash, John Burr Williams wrote his classic treatise, The Theory of Investment Value, arguing that the intrinsic, long-term value of a stock is the present value of the future cash an investor expects to receive, discounted by the investor’s “personal rate of interest.”
The total amount of cash flowing from a corporation to its shareholders consists of the dividends plus share repurchases. In recent years, corporate disbursements to shareholders have increasingly been in the form of repurchases—which makes sense because of their favorable tax treatment. The last input we need is the future rate of growth of S&P 500 dividends plus repurchases. Since 1998 , the annual growth rates have been about 6% for dividends and 10% for repurchases. For the sum, dividends plus buybacks, I am going to use the seemingly conservative value of 5%, which is a little lower than the long-run growth of U.S. GDP.
Warren Buffett explained it this way: “You have to have the knowledge to enable you to make a very general estimate about the value of the underlying business. But you do not cut it close. That is what Ben Graham meant by having a margin of safety. You don’t try to buy businesses worth $83 million for $80 million. You leave yourself an enormous margin. When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 pound trucks across it.
This probability distribution is slightly skewed to the right with a mean of 5151.48 and a median of 4999.69. There is approximately a 4% probability that the intrinsic value of the S&P 500 is less than 3902.62, its value on July 7.
Argentina Últimas Noticias, Argentina Titulares
Similar News:También puedes leer noticias similares a ésta que hemos recopilado de otras fuentes de noticias.
Bronx tenants sue landlord of building with nearly 500 housing violationsA group of frustrated Bronx tenants is taking their landlord and building management company to housing court seeking repairs for nearly 500 violations racked up over the course of several years.
Leer más »
'Astonishing' 500 million-year-old fossils preserved the brain of this creepy 3-eyed predatorPaleontologists found a cache of well-preserved fossils showcasing this three-eyed predator.
Leer más »
Three-eyed predator stalked the seas 500 million years agoStanleycaris hirpex, which lived in the Cambrian period, had two protruding eyes on the side of its head and a larger eye in the centre
Leer más »
S&P 500 Looks to Extend Recent Gains Ahead of NFPsThe S&P 500 built on recent gains on Thursday. Energy stocks led the gains with WTI advancing by more than 5%. Equities pushed higher despite a slight rise in jobless claims. All eyes to nonfarm payroll.
Leer más »
Fast-growing Martensville plans 500-acre industrial area, more jobs\u0027Based on all the activity I see around me, I\u0027m like, OK, how does Martensville perhaps get its share of the pie?\u0027
Leer más »
“Astonishing” 500-Million-Year-Old Fossilized Brains Prompt a Rethink of the Evolution of Insects and SpidersAn ancient radiodont predator with three eyes reveals key information about the evolution of the arthropod body plan. New research based on a cache of fossils that contains the brain and nervous system of a half-billion-year-old marine predator from the Burgess Shale called Stanleycaris has been
Leer más »