Good afternoon,
(please ignore the grammatical errors, and random Search Engine Optimization references. #Google #GoogleAnalytics #SEO)
Will NOAA be able to use the radiation detectors on their buoys to track subs? I have no idea, but I thought the Movie Battleship was a must see, in my opinion the headline is good for SEO purposes.
Any who, I have no background in the effectiveness of Long Wave Radiations (LWR) sensors, Short Wave Radiation sensors (SWR) or Point Source Current Sensors, but I am quite sure the market is overvalued by about 25 percent, and I think I know why.
My hypothesis as to why some positions in the market are so overbought is that about a third of the investors who correctly reduced their equity positions in the S&P due to the economic damage COVID caused developed FOMO, causing them to sell out of their positions too late and buy back in too late.
This coupled with an influx of retail trading, and people not adjusting their automatic retirement plan contributions has led to some stocks to be bought back into, too quickly. This left companies with an inadequate amount of time to issue new shares to adjust to the influx of investor money. By my estimation, I think the market has front run at least three years of returns.
I think Morgan Stanley and the other banks involved in unwinding the Archegos positions did a phenomenal job. By my model they valued them fairly in returning the shares to market. I believe this, because I built a model for valuing the S&P 500. The approach I use has worked well for me in the past and validates the pricing in which the shares where returned to the market.
Please note, I am not an investment advisor, and I am not providing investment advice. I have just attached a copy of the model I built and developed on my personal computer, in my own free time, with my own research, as I believe others will find it interesting for academic purposes.
The method I use for valuing the market is unorthodox. Basically, I assumed that the S&P was such a large sample of companies that were valued by either DDMs, FCFF DCFs, or FCFE DCFs that the percentage of each company valued by these types of models is relatively stable. I also assumed , the amount of firms valued by FCFF firms is relatively small compared to the other types of models dominating the index. This led me to conclude that a significant correlation I found between the companies in the S&P 500s’ net income/outstanding shares plus each firms book value and the price of the S&P 500 could be used to determine what the price of the S&P 500 should be.
The way I determined that price was by skipping the CAPM equation aspect of most discounted cash flow valuations, and simply projecting their collective net incomes out for 30 years at a 5.5 % growth rate, discounting it back by the yield of the ten year, and then assigning a best fit multiplier to tie the values back to historic market prices.
The model had to be adjusted after the corporate tax rate decrease, and the inclusion of Tesla in the index, but the correlation has historically held up well. Take a look if you’re interested!
Once investors again start caring about dividend yield and or return on of capital from liquidation events, it could be a useful tool.
Please note this model is no longer useful with market pricing being so distorted. It will also have to be adjusted if the US corporate tax is adjusted.
Warmest Regards,
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