Growth, Returns on Capital, and Business Valuation

Before I start this piece on valuation, I just want to say that nothing in business or finance is as complicated as it looks, and nearly all of it is much simpler than you think. I’m going to get a bit wonky in explaining some terms here but what’s important is that the concepts are understood.

U.S. Stock Market Valuations and Future Returns of the S&P 500

In 2013, Eugene Fama, Lars Hansen, and Robert Shiller won the Nobel Prize in Economics. It was an odd trio, given that Fama is one of the fathers of the efficient markets theory and Shiller wrote a book titled 'Irrational Exuberance' in which he discussed the irrationally high stock prices  shortly before the crash of 1999.