1: Two decades of great ‘reasons’ to sell Yet, despite a couple hefty pull-backs investors would have done well to stay put. 2: 2021 stock market winners and losers by sector 3: Decomposition of S&P 500 returns since 2011Thanks for reading DumbWealth! Subscribe for free to receive new posts and support my work.
Wondering if you can clarify PE multiple vs. EPS? And then wondering about your read on the declining proportion of PE in 2021 compared to increasing proportion of buyback in underlying value of a stock. Also, why does it say 21% in the title but 70.9% in the graph?
P/E expansion refers to valuations. So as the p/e multiple expands, it shows people are willing to pay more for each dollar of earnings, which raises stock prices. EPS is strictly the earnings component. Stocks tend to rise with earnings growth (given a constant p/e multiple).
Contribution to market returns due to p/e expansion has likely recently declined because of the pullback in many of the tech stocks lately. And buybacks might be having a resurgence as 1) companies are more confident in deploying cash and 2) regulators ease restrictions on bank buybacks.
The 70.9 you see in the graph is that components contribution to the absolute index level whereas the 21% is the proportional contribution.
Wondering if you can clarify PE multiple vs. EPS? And then wondering about your read on the declining proportion of PE in 2021 compared to increasing proportion of buyback in underlying value of a stock. Also, why does it say 21% in the title but 70.9% in the graph?
P/E expansion refers to valuations. So as the p/e multiple expands, it shows people are willing to pay more for each dollar of earnings, which raises stock prices. EPS is strictly the earnings component. Stocks tend to rise with earnings growth (given a constant p/e multiple).
Contribution to market returns due to p/e expansion has likely recently declined because of the pullback in many of the tech stocks lately. And buybacks might be having a resurgence as 1) companies are more confident in deploying cash and 2) regulators ease restrictions on bank buybacks.
The 70.9 you see in the graph is that components contribution to the absolute index level whereas the 21% is the proportional contribution.