Hey Fabian - I remembered I read somewhere else that E(Re) = D/P-%S + (i+g) +%PE The "i+g" stands for = . Just want to make sure if we still need to add the inflation rate, if provided here, to the 5% (long term corporate earnings growth rate) in this example? As in the model presentation and example, inflation was never mentioned so not sure if it is still relevant.. Thanks!
Depends on whether the g is real or nominal. If g is in real terms, then you need to add i in. If g is in nominal terms, then you don't need to add i anymore.
Also just realised that the video "Portfolio Management for Institutional Investor (Example)" is taken down.....Will you be reposting it? or that is too outdated for the 2020 syllabus? Thanks!
That video (which is set as unlisted) is for my students at Noesis, but I didn't realise that an unlisted video that is added to a playlist will be visible to the public. So, hence the removal from the playlist. It will not be re-posted.
Hi Fabian, one small question. I have seen conflicting info wrt to the %in nominal earnings. In book they say for long term take % change in nominal earnings as long term GDP. However, in the online ecosystem their is question (Brian O'Reilly Case Scenario) where they have taken the premium to the nominal gdp. Can you please help clear this doubt. thanks
Thank you so much for this video. Now I understand every term of the formula, except the cash flow part . Indeed, I still don't get why (D/P) - %deltaS is supposed to be the expected cash flow return? Thank you again
Dear Fabian, My comments keep getting deleted for some reason, not sure why. But, hopefully you get to see this before it gets deleted. Maybe its because I linked an image to the qn. So I am trying it without the link. There was a qn in the CFAI qn bank, where they didn't assume change in P/E and S to go to zero in the long-run. Just wondering if that is just an error on CFAI's part, and we just follow the video you provided here. Thank you!
Hi, Ya, I kept seeing notifications about comments but it was hidden from me. My students asked me about that question in the CFAI QBank. This is what I told them: "In the long run, we would expect the equity return to be coming from the % change in nominal GDP growth (which is denoted by the % change in earnings) plus the dividend yield. In other words, the %change in shares outstanding and %change in P/E should be zero." That is the default assumption, unless they provide you with the numbers for %change in shares outstanding and P/E in the long run, then just use it.
@@FabianMoa Thank you! I was thinking they could provide it, but with the point that we should not be using it. That's my confusion. I wish they had more clarity on this issue because it is not related to not knowing the material.
@@FabianMoa Dear Fabian, Do you have any tips on how to get through the two case study readings at the end of book 6? I haven't had a chance to go through them since November and don't have much time to read through it before the exam. Would really appreciate any tips on how to prepare for it efficiently with the remaining amount of time I have (writing June 1). Thank you!
If you have covered the topics such as Risk Management for Individuals, Asset Allocation, Institutional Investors, then the last two readings are just applications. All the Best in your exam!
The %Chg in E is actually the growth rate in corporate earnings... In the *long run* , we expect the growth in corporate earnings to be similar to the expected nominal GDP growth.
Hi Fabian, the second term says "nominal earning growth". I am wondering if a question says corporate earning growth rate is 5% and inflation is 4%, how do we know if we have to add inflation to the corporate earning growth rate? Because initially I thought the 5% is real growth rate, and we have to add 4% to make it nominal growth
i have a question on %deltaS. Suppose I own #100 of the Company's stocks and the Company has #1000 outstanding stocks. If the company repurchases #10 stocks, that's a delta of 1% (10/1000*100). But the company is not necessarily repurchasing #10 of my #100 stocks that I hold. It could just be repurchasing 10 random willing sellers of the stocks in the market. So where does the extra return come from? Also, if you think about it in EPS terms, repurchasing #10 stocks do not increase my EPS by 10%. Basic math: If Earnings were $100, then EPS before share repurchase would be $100/# 1000 shares = $0.10 per share. So if you repurchase #10 stocks, EPS becomes $100/990 = $0.101 per share. Not exactly a 10% increase in EPS return. So i struggle to see how %deltaS increases my return...
Thank you very much for this video! Very easy to understand this formula
Great video. If we used that second method on the exam, would we get full marks? I know we’d get the same number but say if we showed the steps.
Yes
Well explained! Will you post a video on ST model?
There are plans for a video on Singer-Terhaar. In the queue.
Hi Wendy, in case you missed it! Video on Singer-Terhaar model
th-cam.com/video/RK2WETqIzoQ/w-d-xo.html
Hey Fabian - I remembered I read somewhere else that E(Re) = D/P-%S + (i+g) +%PE
The "i+g" stands for = . Just want to make sure if we still need to add the inflation rate, if provided here, to the 5% (long term corporate earnings growth rate) in this example? As in the model presentation and example, inflation was never mentioned so not sure if it is still relevant..
Thanks!
Depends on whether the g is real or nominal.
If g is in real terms, then you need to add i in.
If g is in nominal terms, then you don't need to add i anymore.
i + g = nominal earnings growth rate
g = real earnings growth rate
@@FabianMoa Got it, thanks Fabian!
Also just realised that the video "Portfolio Management for Institutional Investor (Example)" is taken down.....Will you be reposting it? or that is too outdated for the 2020 syllabus? Thanks!
That video (which is set as unlisted) is for my students at Noesis, but I didn't realise that an unlisted video that is added to a playlist will be visible to the public. So, hence the removal from the playlist. It will not be re-posted.
Hi Fabian, one small question. I have seen conflicting info wrt to the %in nominal earnings. In book they say for long term take % change in nominal earnings as long term GDP. However, in the online ecosystem their is question (Brian O'Reilly Case Scenario) where they have taken the premium to the nominal gdp.
Can you please help clear this doubt. thanks
Brilliant, thank you
You're very welcome!
Thank you so much for this video. Now I understand every term of the formula, except the cash flow part . Indeed, I still don't get why (D/P) - %deltaS is supposed to be the expected cash flow return? Thank you again
D/P is the dividend return
-DeltaS is the return from share repurchases
Both are cash flow distributions back to shareholders
Dear Fabian,
My comments keep getting deleted for some reason, not sure why. But, hopefully you get to see this before it gets deleted. Maybe its because I linked an image to the qn. So I am trying it without the link.
There was a qn in the CFAI qn bank, where they didn't assume change in P/E and S to go to zero in the long-run. Just wondering if that is just an error on CFAI's part, and we just follow the video you provided here. Thank you!
Hi,
Ya, I kept seeing notifications about comments but it was hidden from me.
My students asked me about that question in the CFAI QBank. This is what I told them:
"In the long run, we would expect the equity return to be coming from the % change in nominal GDP growth (which is denoted by the % change in earnings) plus the dividend yield. In other words, the %change in shares outstanding and %change in P/E should be zero."
That is the default assumption, unless they provide you with the numbers for %change in shares outstanding and P/E in the long run, then just use it.
@@FabianMoa Thank you! I was thinking they could provide it, but with the point that we should not be using it. That's my confusion. I wish they had more clarity on this issue because it is not related to not knowing the material.
@@FabianMoa Dear Fabian, Do you have any tips on how to get through the two case study readings at the end of book 6? I haven't had a chance to go through them since November and don't have much time to read through it before the exam. Would really appreciate any tips on how to prepare for it efficiently with the remaining amount of time I have (writing June 1). Thank you!
If you have covered the topics such as Risk Management for Individuals, Asset Allocation, Institutional Investors, then the last two readings are just applications.
All the Best in your exam!
Why we use long-term corporate earning growth (5%), instead of expected nominal GDP growth (4%), as equity growth rate proxy?
The %Chg in E is actually the growth rate in corporate earnings...
In the *long run* , we expect the growth in corporate earnings to be similar to the expected nominal GDP growth.
Hi Fabian, the second term says "nominal earning growth". I am wondering if a question says corporate earning growth rate is 5% and inflation is 4%, how do we know if we have to add inflation to the corporate earning growth rate? Because initially I thought the 5% is real growth rate, and we have to add 4% to make it nominal growth
If it doesn't mention nominal or real explicitly, always take it as a nominal amount.
i have a question on %deltaS. Suppose I own #100 of the Company's stocks and the Company has #1000 outstanding stocks. If the company repurchases #10 stocks, that's a delta of 1% (10/1000*100). But the company is not necessarily repurchasing #10 of my #100 stocks that I hold. It could just be repurchasing 10 random willing sellers of the stocks in the market. So where does the extra return come from?
Also, if you think about it in EPS terms, repurchasing #10 stocks do not increase my EPS by 10%. Basic math: If Earnings were $100, then EPS before share repurchase would be $100/# 1000 shares = $0.10 per share. So if you repurchase #10 stocks, EPS becomes $100/990 = $0.101 per share. Not exactly a 10% increase in EPS return.
So i struggle to see how %deltaS increases my return...
Hi John, the GK model is for calculating the return on the equity market, not for individual investors.