The Complexity of Stock Valuation

This chapter delves into the intricacies of stock valuation metrics and their reliability in forecasting long-term performance. It critiques traditional metrics, emphasizing that successful companies may exceed short-term expectations and sustain growth longer than anticipated. The speakers discuss the importance of fundamental analysis while noting the concentration of wealth creation in a few outperforming stocks, especially in international markets.

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Episode notes

On today’s episode, Clay is joined by Professor Hendrik Bessembinder to discuss his renowned research on the performance of individual stocks.

Professor Bessembinder is a finance professor at Arizona State University, and his research titled, ‘Do Stocks Outperform Treasury Bills?’ has been referenced many times on the show. As a frequent speaker at conferences, financial markets, and universities around the world, Professor Bessembinder has more than 25 years of successful consulting experience, providing strategic advice and analysis for major firms, financial markets, and government agencies.

IN THIS EPISODE YOU’LL LEARN:

01:58 - Why most stocks lose money in the long run.

10:26 - What level of asymmetry exists in the stock market.

12:47 - Why stocks continuously outperform treasury bills over long time periods.

15:02 - What the average drawdown for a high-performing stock is.

20:57 - The common characteristics of the biggest stock market winners.

34:28 - What it takes to be a stock picker in today’s market.

45:17 - What the best-performing stocks are since 1925.

51:48 - Whether there is skewness in international stocks to the same degree as US stocks.

And so much more!

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members.
Hendrik’s most well-known paper, Do Stocks Outperform Treasury Bills?
Hendrik’s research.
Related Episode: Listen to TIP654: Investing Across the Lifecycle w/ Aswath Damodaran, or watch the video.
Related Episode: Listen to TIP543: 100 Baggers: Stocks that Return 100-1 w/ Chris Mayer, or watch the video.
Follow Clay on Twitter.
Check out all the books mentioned and discussed in our podcast episodes here.
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