Chart:Sensex CAGR is same as Earnings CAGR

Source: Motilal Oswal



2 replies on “Chart:Sensex CAGR is same as Earnings CAGR”

isn’t it the game all about ?
While long term CAGR remains the same, individual year to year results vary widely. And that’s where the game lies.

Volatility of returns (35%) is far greater than the volatility of earnings (15%) – this though is not a surprise – Bob Shiller got the Nobel Prize to point this out.

What this means though is that prices (rather Price to Value) contain more information (sometimes) about expected future returns than cash flows. Then, what matters more is how your margin of safety (in Buffet Speak) differs from that of the market i.e. discount rates applied to cash flow matter more than the risky cash flows themselves. Unfortunately, Mr. Buffet has never told us how he adjusts his margin of safety to market conditions! I believe that is the secret sauce beyond cash flows.

Leave a Reply

Your email address will not be published. Required fields are marked *