Economics and finance largely come down to how people measure the value of things. Value is always a difficult concept to pin down because it is really about what people can agree upon at a given moment in time. Money is the epitome of agreed-upon value. Dollar bills have no inherent or use value. The … Continue reading How we measure value and why this matters
The increase in stock buybacks is an important trend. This post explores the basics of buybacks and some of the controversy they inspire. Companies must choose how best to use their earnings. They can pursue new growth opportunities, they can pay dividends or they can purchase their own stock, a stock buyback (also referred to … Continue reading Understanding stock buybacks
In 2015, I decided to get my 14-year-old into investing. The school year is busy, so we started in June. Over years prior, I had taught him the basics of investing. We went over the the definitions of stocks and bonds, and then moved on to funds. I explained the basics of valuation measures such … Continue reading How my son started investing
The foundation of fundamental analysis is determining whether companies, sectors, and markets are expensive or cheap relative to measures of their inherent value. The most commonly-cited measure of value for stocks is the price-to-earnings (P/E) ratio. We might look at the most-recent year's earnings, the standard for P/E, or average earnings over a longer period … Continue reading Are stocks too expensive to be attractive?