Stocks for the Long Run : the Definitive Guide to Financial Market Returns and Long-term Investment Strategies

earnings. The reason why the Fed model worked is that the market rated these two risks as approximately equal during this period ...

sponsored firms such as Fannie Mae and Freddie Mac also became pub- lic corporations. The sum of corporate profits and proprieto ...

Book Value, Market Value, and Tobin’s Q Thebook valueof a firm has often been used as a valuation yardstick. The book value is t ...

But there are critics of the Q theory. Capital equipment and struc- tures lack a good secondary market, and hence there is no re ...

States to draw talent from the rest of the world may create shareholder value in excess of the cost of hiring these workers.^30 ...

The ratio of the market value of equity to the GDP can both theo- retically and empirically exceed 1. Equity valuation is a bala ...

increase over time as new firms go public. Another misleading time se- ries is a representative stock index against average hous ...

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8 CHAPTER THE IMPACT OF ECONOMIC GROWTH ON MARKET VALUATION AND THE COMING AGE WAVE The term “new economy” has become, beginning ...

Yet all of these factors may be eclipsed by the most important macroeconomic trend of the next two decades—the hundreds of mil- ...

by floating new shares. The added interest costs (in the case of debt fi- nancing) and the dilution of earnings (in the case of ...

The Gordon Dividend Growth Model The belief that growth automatically boosts stock prices grows out of the misuse of a popular m ...

where dis next period’s dividend per share, gis the constant rate of fu- ture growth of dividends per share, and ris the discoun ...

by the Gordon model. If a firm cuts its dividend dand uses the proceeds to earn a rate of return r, the growth of future dividen ...

Factors That Impact Expected Returns We have shown in Chapter 5 that the reduction in taxes on equity return due to the reductio ...

discount to such safe and liquid assets as government bonds. As stocks become more liquid, their valuation relative to earnings ...

investment and returns to stockholders and investors in other securities may tend to become equalized.^16 More Stable Economy Th ...

the equity premium, the higher will be the valuation of stocks relative to economic fundamentals, such as earnings and dividends ...

longer be appropriate in today’s market. If the real risk-free rate of in- terest on long-term TIPS bonds is 2 percent, then a 3 ...

Demography Is Destiny The latest data from the U.N. Demographic Commission, displayed in Figure 8-3, show clearly the aging of t ...