Berkshire Hathaway Inc. (BRK.A, BRK.B) released its annual report on Feb. 22, 2020. As usual, Chair Warren Buffett‘s letter is of interest to Berkshire’s shareholders and other investors alike who look to the investing sage for pearls of wisdom. Here are five key takeaways from this year’s letter: Warren Buffett’s 2019 Annual Letter: Five Takeaways…
What Is a Zero-Beta Portfolio? A zero-beta portfolio is a portfolio constructed to have zero systematic risk, or in other words, a beta of zero. A zero-beta portfolio would have the same expected return as the risk-free rate. Such a portfolio would have zero correlation with market movements, given that its expected return equals the…
The forward price to earnings (P/E) is a valuation metric for measuring and comparing a company’s earnings–using expected earnings per share–to the current stock price. Companies forecast their earnings for each quarter using earnings per share (EPS)which is a company’s profit divided by the number of outstanding common stock shares. If a company’s EPS is…
What Is a Catastrophe Bond (CAT)? A catastrophe bond (CAT) is a high-yield debt instrument that is designed to raise money for companies in the insurance industry in the event of a natural disaster. A CAT bond allows the issuer to receive funding from the bond only if specific conditions, such as an earthquake or…
What Are Risk Measures? Risk measures are statistical measures that are historical predictors of investment risk and volatilityand they are also major components in modern portfolio theory (MPT). MPT is a standard financial and academic methodology for assessing the performance of a stock or a stock fund as compared to its benchmark index. There are…
What Is a Maximum Drawdown (MDD)? A maximum drawdown (MDD) is the maximum observed loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an…
Nearly all companies are required to prepare their financial statements as set out by the Financial Accounting Standards Board (FASB)whose standards are generally principles-based. FASB uses these principles in establishing its accounting practices and methods. Law requires U.S. companies to adhere to accounting standards when reporting their financial statements, but the specifics can vary depending…
No, Social Security payments are not included in the U.S. definition of the gross domestic product (GDP). Social Security payments are transfer payments, which are not included. They are, however, counted as personal consumption expenditures (PCE) once they are used to purchase something. Because of this, counting Social Security payments issued from the government to…
The Dow Jones Transportation Average has failed to break out with major benchmarks, setting off a bearish divergence originally described by Dow Theory more than 100 years ago. This “non-confirmation” could be significant because it’s forecasting tougher times for blue chips and big tech in the second quarter. It’s even possible that the Dow Jones Industrial…