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Factors Determining Total Returns of Common Stock
The total returns of common stock or the S&P 500 can be determined by five key factors: the change in earnings per share, the change in the multiple (price paid for earnings), dividend yield (if applicable), the growth rate of the top line in dollar terms, and understanding where returns for index investors come from. These factors collectively contribute to the overall investing landscape and play a crucial role in shaping expected returns in the market.
Stig has invited legend investor Chris Bloomstran from Semper Augustus to teach us how to value Berkshire Hathaway on today's show. Semper Augustus has an outstanding track record with a compounded annual growth rate of 11.5% on equities since his fund's inception on 2/28/1999, compared to 7.6% for the S&P500.
IN THIS EPISODE YOU’LL LEARN:
00:00 - Intro
01:37 - The impact of holding cash on your portfolio returns.
24:07 - How to understand the five different components that make up stock market returns.
33:14 - How to estimate the expected return of being invested in the S&P500.
40:57 - What the intrinsic value of Berkshire Hathaway is.
45:51 - How Berkshire Hathaway has allocated capital since 2018.
Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.
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