Chuck, love your energy and lessons as always... Happy to learn as always. I might be wrong sometimes, but with your lessons, explanation and pointing out facts I feel more comfortable...
In Peter Lynch's book "one up on Wall Street" on page 164 and 165 he wrote "“A quick way to tell if a stock is overpriced is to compare the price line to the earnings line. If you bought familiar growth companies - such as Shoney’s, The Limited, or Marriott - when the stock price fell well below the earnings line, and sold them when the stock price rose dramatically above it, the chances are you’d do pretty well.” FAST Graphs provide the ability to do that very easily. However, although I agree with Peter to an extent, I do think that proper comprehensive research and due diligence is still necessary. Regards, Chuck
Appreciate the video Chuck. Could you elaborate on why a 15 PE/6.67% earnings yield is appropriate across different interest rate environments? If I can get 5% risk free in government bonds shouldn't that require a much higher earnings yield from stocks to account for equity risk premium?
You compare EPS yield to Bond yield. 6.67% is hugher than 5. Time factor is important too.. Bonds will be up shortly, stocks will return more in long run IF bought for good valuation as shown. For most companies PE 15 = EPS Yield 6.67%.... So as shown, if you buy at fair value, then you participate fully in earnings growth. If you buy undervalued (EPS yield is higher), than you participate fully in earnings growth+PE expansion and if company pays dividend then + dividends..... Running in panic from stocks to bonds is like looking to the leaflet for discounts in supermarket called Stock Market 🙂.... Well I might be wrong, we are living in crazy unexpected times, but as a complement of portfolio bonds are ok... Only bonds, not really. Studies show that stocks outperformed bonds in longrun...
Thanks for the question the article I linked to above is relevant to your question. Here is the main point, we are not measuring the value of the stock against any outside investment. Instead, we are measuring the value of the stock based on the amount of cash flows (earnings) that the business is capable of generating on behalf of its shareholders. Furthermore, the 5% quote unquote risk free return from government bonds is fixed and ravaged by inflation. The earnings yield is the current starting yield that will grow over time depending on the growth rate of the business. I showed several examples of this in the video. In the long run, the stock even a low grower will return more than the 6.67% current yield. Nevertheless, let me repeat. I am assessing the value of the business based on discounting the amount of cash flow it can produce in the future on its shareholders behalf. I don't care what a bond pays, because the investments are not the same. One is loaner ship the other is ownership. To conclude it doesn't matter what interest rates are it doesn't change the value of the investment (the stock/business). It might in the short run determine how the market may price it. But market price and intrinsic value are not the same thing. I hope this helps, but I will close with is an incomplete answer but a relevant one. Regards, Chuck
@@FASTgraphs Chuck, thanks the response. I agree that a 15 PE is a good general baseline. It's just hard for me to see how this shouldn't be affected when the risk free rate of return jumps from 0% to 5%. Valuation seems like it should be relative to other alternatives as capital is finite and there's an opportunity cost with investing in something and not another thing. I've been moving out of slower growth, low dividend positions as a result, but I guess time will tell whether this is prudent. This is my first time investing in a higher interest environment and it's made me question a few things I previously treated as gospel. Thanks again.
@@ahhsugoi I understand your confusion and/or conundrum. However, I've been doing this for 50+ years and have invested in all interest-rate environments from extremely high to extremely low. When I have concluded from that experience is that interest rates are an expense, just like a rise in the cost of commodities, labor, or any other factor of production. To the extent that they might interfere with the company's ability to generate growth, interest rates will have an effect, once again just like any cost might. Perhaps it would be helpful to think of it this way, interest rates will not affect the intrinsic value unless they cause a different level of the company's ability to generate cash flow's and earnings. However, at least in the short run, they might change the attitude of people towards equities causing a temporary shift in supply and demand which affects short-term stock price. I often stated this way EDMP (earnings determine market price) in the long run, but there is an evil twin sister EDMP (emotions determine market price in the short run). I hope that is helpful. Regards, Chuck
Thanks Chuck. I'll need to let this marinate a bit more. I agree that emotions often drive market price in the short term. While emotions are certainly involved, I think this step change in interest rates should have a very real effect on risk/return balance that needs to be considered. All the best.
A good tool use is to put today's CAG P/E (9.90) into the Custom Valuation. This clearly shows that this company has only been available at this valuation a handful of times over the last 10 years. Is that enough context? Can't do this without FASTgraphs.
I noticed for a lot of stocks when the dividend yield line is at or near all-time highs, the price is suppressed. As the yield starts to normalize or come down, the price unequivocally rises.
Could be because the assertion is garbage. You are valuing the company based on its ability to generate earnings and cash flows. There is a distinction between intrinsic value which is based on discounting those cash flows, and market value which is mostly emotionally driven and often "garbage" as you put it. Stock prices lie, fundamentals are true.
@@FASTgraphs Thanks for your answer, but I'm still confused. If Fastgraphs shows the valuation line based on P/E =15x, where P stands for market value, the Fastgraph chart will make any stock with a lesser P/E look undervalued even though a lower P may be just the result of a higher stock discount rate?
I know I'm overthinking this...but if the historical FV (orange) let's say is 21x, the market value (blue) is 25x, and the blended is 29x (current), how do I back into the price I should buy, aside from looking to see if the black line is under the orange line? I need another cup of coffee!!!
It appears that you are already a subscriber. If that is true, thanall you need to do is go to the forecasting calculators and point to either the fair value line (orange) or the blue normal (market) average line in the value or price will be displayed in the pop up. If you are not already a subscriber you might try the free trial and evaluate the dynamic power of FAST Graphs. One final caveat, FAST Graphs are a fundamentals analyzer software tool to think with. In other words, it reveals value but does not dictate it - judgment is always required.
@@FASTgraphs Thank you. I am a sub...just signed up for the Premium this am. I watched a few of the vids over the wknd and am convinced this is the best tool to help with the final piece of my stock analysis - and that is valuation. Price is critical and your tools are very informative. Thanks
On the Fiserv chart, I was surprised to realize that the 15.6% 20 year growth rate you use was linear from 20yr to present, rather than CAGR. When we use the current year's growth rate for our estimates, aren't we hoping to CAGR it, not linear grow it?
The growth rate is calculated from point a to point B and is CAGR over the timeframe being calculated. Where I may have confused you is referring to it as the slope of the line. For example if you look at CMI and check 20 years the earnings growth rate is 11.27% from point A to point B. However, the orange line will have various slopes in between because it is cyclicality. Nevertheless, CMI did grow earnings by 11.27% over the timeframe being measured. However, earnings growth from one year to the next was different as indicated by the line just below the EPS line at the bottom of the graph. Likewise with FI. In other words I'm trying to explain the steepness over the long-term of the lines on the graph as they relate to the growth rates calculated. I hope that that clarifies it, Chuck
@@FASTgraphs Yes, thanks, that makes sense. I'm glad to hear it's CAGR. It might be helpful to explain to the audience that it is CAGR. There is a lot of misinformation out there about the different mathematical types of growth. You have a great opportunity to educate people who might not have a quantitative background, as to what is the underlying mechanism of compound growth. My pet peeve is people on TV throwing out the term "growing exponentially" when it's not an exponential function. And of course a stock "going parabolic" is equally meaningless. (Greek- Parabola= near throw, Hyperbola = far throw)
Very helpful video. Does Fast Graphs work in this same way if the company is not showing earnings and only has Price to Sales to work off of? All of the companies you demonstrated have positive earnings I believe.
Not sure how to answer this. FAST Graphs are an analytical tool that analyze the relationship between fundamentals and stock price. Additionally, they provide information on the financial stability of the company etc. So, they work to display the fundamentals regardless. However, with that said, often newer companies will have strong sales and show little in the way of earnings. Our tool reveals that, but the investor has to decide for themselves whether they buy sell or hold. As I like to say FAST Graphs reveal valuation they do not dictate it. Hope that helps. Regards, Chuck
2 things, so-called value ETF's often do not, in fact most often do not, practice true value investing. A good way to check this, when be to look at the individual constituents the lens of FAST Graphs and note how many of them are overvalued in reality. The definition of value investing is often loosely thrown around. Additionally, true practitioners of value investing have outperformed the S&P 500 over the long run. As evidenced by value investors such as Peter Lynch, Warren Buffett, Bill Miller, and of course Ben Graham to name just a few. Finally, over short periods of time momentum stocks will often outperform. But usually not over the long term. Regards, Chuck
As a beginner, I don't understand why a company whose earnings grow 3% per year has a P/E ratio of 15. Isn't that massively too much. I don't understand what P/E I should reasonably pay in the real world for a given growth rate. Can you explain it to me in more detail or point me to a video? I would be very grateful.  Povratne informacije
For starters, a stream of income has value greater than one times its annual level, even if the income stream doesn't grow. To understand this better a 5% treasury bond with 0 growth sells at 20 times interest. An 8% bond sells at 12 1/2 times interest and so on and so forth. Finally, the P/E of 15 is simply a valuation reference. Peter Lynch used that on all all the charts in his book "one up on Wall Street." Legendary investor Ben Graham said never pay more than 15 times earnings to buy a stock. Here is a link to an article I wrote in 2019 that elaborates: fastgraphs.com/blog/why-a-15-p-e-ratio-is-fair-value-for-most-companies/ regards, Chuck
This video did not say add those stocks, instead, it showed you what the return would be if you did. This is not about recommending any stock it was about addressing the principles of valuation. Regards, Chuck
Might as well just push your money into an AAA+ tripple rated index fund for your 2% anual, since youre not even looking to generate any capital. I mean, what... 6k - 10k after 20 years? sounds horrendous to me
You need to watch the whole video. It has nothing to do with 2% annual, and when valuation is practiced correctly capital appreciation is enormous. Regards, Chuck
@@FASTgraphs As far as I understand your video, it seems to be that you are describing scenarios that are pratically impossible to execute in reality. You have described entries and exits at their peaks. In order to hit such trades you´d either need to know more than God himself, or be able to predict the future. Simultaniously, you are speculating on a companies future performance, based on its past performance. A good example for this not being an accurate prediction is Uniper. And if I add the risk and reward ratios together in my head, it does not seem to me, that this is a good risk to be taken. Minimal returns for a consistent large risk.
@@marcomaroni3963 that is not the point, I am not suggesting that you know when to buy at the perfect low or sell at the perfect high. I am simply illustrating the value of buying what is undervalued versus buying what is overvalued. Nevertheless with that said, the FAST Graph research tool clearly shows you when valuations are good, not perfect, but good and when valuations are not good. You don't have to be perfect because investing is not a game of perfect. On the other hand, you can be prudent and you can be smart and you can reduce risk while simultaneously enhancing returns.. Finally, I was showing examples of companies with different attributes. And I was using those examples to illustrate how and where return comes from. Some were slow growth some were fast growth, and with all due respect, based on your comment you clearly did not understand the video. Maybe try watching it again with an open mind and pay attention to what is actually being said and illustrated. Regards, Chuck
Another classic lecture from Mr Valuation. Combination of FG and Chuck’s strategy = 🐐
Thank you for this teaching, very much appreciated.
Excellent as usual Chuck ! Thank you.
Excellent Chuck!!
Thank you Chuck. For me, this has been the best video you have made. Thanks again.
Thanks Chuck, for the good video and including OMC, waiting for the next series.
Chuck, love your energy and lessons as always... Happy to learn as always. I might be wrong sometimes, but with your lessons, explanation and pointing out facts I feel more comfortable...
Very interesting video again :)
Greetings from Germany
Nice refresher for me, thanks.
Thank you uncle. best ever.
So buy below that damn orange line so simple thanks Chuck!
In Peter Lynch's book "one up on Wall Street" on page 164 and 165 he wrote "“A quick way to tell if a stock is overpriced is to compare the price line to the earnings line. If you bought familiar growth companies - such as Shoney’s, The Limited, or Marriott - when the stock price fell well below the earnings line, and sold them when the stock price rose dramatically above it, the chances are you’d do pretty well.” FAST Graphs provide the ability to do that very easily. However, although I agree with Peter to an extent, I do think that proper comprehensive research and due diligence is still necessary. Regards, Chuck
Thank you
Great stuff.👍
Appreciate the video Chuck. Could you elaborate on why a 15 PE/6.67% earnings yield is appropriate across different interest rate environments? If I can get 5% risk free in government bonds shouldn't that require a much higher earnings yield from stocks to account for equity risk premium?
You compare EPS yield to Bond yield. 6.67% is hugher than 5. Time factor is important too.. Bonds will be up shortly, stocks will return more in long run IF bought for good valuation as shown. For most companies PE 15 = EPS Yield 6.67%.... So as shown, if you buy at fair value, then you participate fully in earnings growth. If you buy undervalued (EPS yield is higher), than you participate fully in earnings growth+PE expansion and if company pays dividend then + dividends..... Running in panic from stocks to bonds is like looking to the leaflet for discounts in supermarket called Stock Market 🙂.... Well I might be wrong, we are living in crazy unexpected times, but as a complement of portfolio bonds are ok... Only bonds, not really. Studies show that stocks outperformed bonds in longrun...
Thanks for the question the article I linked to above is relevant to your question. Here is the main point, we are not measuring the value of the stock against any outside investment. Instead, we are measuring the value of the stock based on the amount of cash flows (earnings) that the business is capable of generating on behalf of its shareholders. Furthermore, the 5% quote unquote risk free return from government bonds is fixed and ravaged by inflation. The earnings yield is the current starting yield that will grow over time depending on the growth rate of the business. I showed several examples of this in the video. In the long run, the stock even a low grower will return more than the 6.67% current yield. Nevertheless, let me repeat. I am assessing the value of the business based on discounting the amount of cash flow it can produce in the future on its shareholders behalf. I don't care what a bond pays, because the investments are not the same. One is loaner ship the other is ownership. To conclude it doesn't matter what interest rates are it doesn't change the value of the investment (the stock/business). It might in the short run determine how the market may price it. But market price and intrinsic value are not the same thing. I hope this helps, but I will close with is an incomplete answer but a relevant one. Regards, Chuck
@@FASTgraphs Chuck, thanks the response. I agree that a 15 PE is a good general baseline. It's just hard for me to see how this shouldn't be affected when the risk free rate of return jumps from 0% to 5%. Valuation seems like it should be relative to other alternatives as capital is finite and there's an opportunity cost with investing in something and not another thing. I've been moving out of slower growth, low dividend positions as a result, but I guess time will tell whether this is prudent. This is my first time investing in a higher interest environment and it's made me question a few things I previously treated as gospel. Thanks again.
@@ahhsugoi I understand your confusion and/or conundrum. However, I've been doing this for 50+ years and have invested in all interest-rate environments from extremely high to extremely low. When I have concluded from that experience is that interest rates are an expense, just like a rise in the cost of commodities, labor, or any other factor of production. To the extent that they might interfere with the company's ability to generate growth, interest rates will have an effect, once again just like any cost might. Perhaps it would be helpful to think of it this way, interest rates will not affect the intrinsic value unless they cause a different level of the company's ability to generate cash flow's and earnings. However, at least in the short run, they might change the attitude of people towards equities causing a temporary shift in supply and demand which affects short-term stock price. I often stated this way EDMP (earnings determine market price) in the long run, but there is an evil twin sister EDMP (emotions determine market price in the short run). I hope that is helpful. Regards, Chuck
Thanks Chuck. I'll need to let this marinate a bit more. I agree that emotions often drive market price in the short term. While emotions are certainly involved, I think this step change in interest rates should have a very real effect on risk/return balance that needs to be considered. All the best.
Thanks, already have cat an cummins, need to check the others.
A good tool use is to put today's CAG P/E (9.90) into the Custom Valuation. This clearly shows that this company has only been available at this valuation a handful of times over the last 10 years. Is that enough context?
Can't do this without FASTgraphs.
Thanks, that is an effective way to utilize the fundamentals analyzer software tool. The point is FG are designed as a tool to think with.
I noticed for a lot of stocks when the dividend yield line is at or near all-time highs, the price is suppressed. As the yield starts to normalize or come down, the price unequivocally rises.
How about the assertion that historical average multiples are garbage when dealing with a new monetary environment?!
Exactly. With rates higher for longer a lot of the companies are not going to old multiples. "Sea change"
Could be because the assertion is garbage. You are valuing the company based on its ability to generate earnings and cash flows. There is a distinction between intrinsic value which is based on discounting those cash flows, and market value which is mostly emotionally driven and often "garbage" as you put it. Stock prices lie, fundamentals are true.
@@FASTgraphs Thanks for your answer, but I'm still confused. If Fastgraphs shows the valuation line based on P/E =15x, where P stands for market value, the Fastgraph chart will make any stock with a lesser P/E look undervalued even though a lower P may be just the result of a higher stock discount rate?
You are the best
I get “unknown error” when trying to buy the international stocks add on. Any solution to that?
Can you please send an email to support@fastgraphs.com with the information so we can help you? support@fastgraphs.com
What do you think of investing into a tech etf like vgt? It's past performance looks pretty good averaging around 12% actually since inception.
Any thoughts on aep.down from high of 100.
Already in the hopper for upcoming videos on sectors
I know I'm overthinking this...but if the historical FV (orange) let's say is 21x, the market value (blue) is 25x, and the blended is 29x (current), how do I back into the price I should buy, aside from looking to see if the black line is under the orange line? I need another cup of coffee!!!
It appears that you are already a subscriber. If that is true, thanall you need to do is go to the forecasting calculators and point to either the fair value line (orange) or the blue normal (market) average line in the value or price will be displayed in the pop up. If you are not already a subscriber you might try the free trial and evaluate the dynamic power of FAST Graphs. One final caveat, FAST Graphs are a fundamentals analyzer software tool to think with. In other words, it reveals value but does not dictate it - judgment is always required.
@@FASTgraphs Thank you. I am a sub...just signed up for the Premium this am. I watched a few of the vids over the wknd and am convinced this is the best tool to help with the final piece of my stock analysis - and that is valuation. Price is critical and your tools are very informative. Thanks
On the Fiserv chart, I was surprised to realize that the 15.6% 20 year growth rate you use was linear from 20yr to present, rather than CAGR. When we use the current year's growth rate for our estimates, aren't we hoping to CAGR it, not linear grow it?
The growth rate is calculated from point a to point B and is CAGR over the timeframe being calculated. Where I may have confused you is referring to it as the slope of the line. For example if you look at CMI and check 20 years the earnings growth rate is 11.27% from point A to point B. However, the orange line will have various slopes in between because it is cyclicality. Nevertheless, CMI did grow earnings by 11.27% over the timeframe being measured. However, earnings growth from one year to the next was different as indicated by the line just below the EPS line at the bottom of the graph. Likewise with FI. In other words I'm trying to explain the steepness over the long-term of the lines on the graph as they relate to the growth rates calculated. I hope that that clarifies it, Chuck
@@FASTgraphs Yes, thanks, that makes sense. I'm glad to hear it's CAGR. It might be helpful to explain to the audience that it is CAGR. There is a lot of misinformation out there about the different mathematical types of growth. You have a great opportunity to educate people who might not have a quantitative background, as to what is the underlying mechanism of compound growth.
My pet peeve is people on TV throwing out the term "growing exponentially" when it's not an exponential function.
And of course a stock "going parabolic" is equally meaningless. (Greek- Parabola= near throw, Hyperbola = far throw)
Very helpful video. Does Fast Graphs work in this same way if the company is not showing earnings and only has Price to Sales to work off of? All of the companies you demonstrated have positive earnings I believe.
Not sure how to answer this. FAST Graphs are an analytical tool that analyze the relationship between fundamentals and stock price. Additionally, they provide information on the financial stability of the company etc. So, they work to display the fundamentals regardless. However, with that said, often newer companies will have strong sales and show little in the way of earnings. Our tool reveals that, but the investor has to decide for themselves whether they buy sell or hold. As I like to say FAST Graphs reveal valuation they do not dictate it. Hope that helps. Regards, Chuck
very interesting video! if value investing is indeed a superior method, then why do the Value ETFs (such as Vanguard VTV) underperform the S&P?
2 things, so-called value ETF's often do not, in fact most often do not, practice true value investing. A good way to check this, when be to look at the individual constituents the lens of FAST Graphs and note how many of them are overvalued in reality. The definition of value investing is often loosely thrown around.
Additionally, true practitioners of value investing have outperformed the S&P 500 over the long run. As evidenced by value investors such as Peter Lynch, Warren Buffett, Bill Miller, and of course Ben Graham to name just a few. Finally, over short periods of time momentum stocks will often outperform. But usually not over the long term. Regards, Chuck
As a beginner, I don't understand why a company whose earnings grow 3% per year has a P/E ratio of 15. Isn't that massively too much. I don't understand what P/E I should reasonably pay in the real world for a given growth rate. Can you explain it to me in more detail or point me to a video? I would be very grateful.

Povratne informacije
For starters, a stream of income has value greater than one times its annual level, even if the income stream doesn't grow. To understand this better a 5% treasury bond with 0 growth sells at 20 times interest. An 8% bond sells at 12 1/2 times interest and so on and so forth. Finally, the P/E of 15 is simply a valuation reference. Peter Lynch used that on all all the charts in his book "one up on Wall Street." Legendary investor Ben Graham said never pay more than 15 times earnings to buy a stock. Here is a link to an article I wrote in 2019 that elaborates: fastgraphs.com/blog/why-a-15-p-e-ratio-is-fair-value-for-most-companies/ regards, Chuck
@@FASTgraphs Thank You very much Sir! 😊
Why I have to add $CPB or $CAG if they had underperformed the SPY in the last 10 years?
This video did not say add those stocks, instead, it showed you what the return would be if you did. This is not about recommending any stock it was about addressing the principles of valuation. Regards, Chuck
100 shares
Might as well just push your money into an AAA+ tripple rated index fund for your 2% anual, since youre not even looking to generate any capital.
I mean, what... 6k - 10k after 20 years?
sounds horrendous to me
You need to watch the whole video. It has nothing to do with 2% annual, and when valuation is practiced correctly capital appreciation is enormous. Regards, Chuck
@@FASTgraphs As far as I understand your video, it seems to be that you are describing scenarios that are pratically impossible to execute in reality.
You have described entries and exits at their peaks. In order to hit such trades you´d either need to know more than God himself, or be able to predict the future.
Simultaniously, you are speculating on a companies future performance, based on its past performance. A good example for this not being an accurate prediction is Uniper.
And if I add the risk and reward ratios together in my head, it does not seem to me, that this is a good risk to be taken. Minimal returns for a consistent large risk.
@@marcomaroni3963 that is not the point, I am not suggesting that you know when to buy at the perfect low or sell at the perfect high. I am simply illustrating the value of buying what is undervalued versus buying what is overvalued. Nevertheless with that said, the FAST Graph research tool clearly shows you when valuations are good, not perfect, but good and when valuations are not good.
You don't have to be perfect because investing is not a game of perfect. On the other hand, you can be prudent and you can be smart and you can reduce risk while simultaneously enhancing returns.. Finally, I was showing examples of companies with different attributes. And I was using those examples to illustrate how and where return comes from. Some were slow growth some were fast growth, and with all due respect, based on your comment you clearly did not understand the video.
Maybe try watching it again with an open mind and pay attention to what is actually being said and illustrated. Regards, Chuck