Where do Stock Returns Come From? (EP.140)

<p>Where do stock returns actually come from? The answers to this deceptively simple question might change your investing perspective. We dive into this foundational investing topic after sharing community updates and chatting about our books and TV series of the week. A key concept in understanding where returns come from, we unpack how stock returns are impacted when companies migrate across size and value portfolios. While exploring how migration differently affects value and growth stocks, we also break down why book equity and growth drive capital gains for growth portfolios but not for value stocks. Linked to this, we discuss stock convergence as they relate to growth and value stocks. Looking deeper into the stock returns, we assess research on why valuation changes in asset classes are critical in determining expected returns. We touch on how valuations lead to an unfair depiction of international stock performance before asking: how justified are valuation changes to value and growth stocks? From understanding stock returns, we jump into our mini-planning topic on Canadian work from home tax reductions, followed by our Talking Sense segment. We wrap our conversation by sharing some bad financial advice. Join us to hear what it is, and to learn more about the anatomy of stock returns.</p> <p> </p> <p><strong>Key Points From This Episode:</strong></p> <ul> <li>More updates from the community and co-host Benjamin’s battle bot building. <strong>[0:00:20]</strong></li> <li>Hear about The Defiant Ones, our TV series of the week. <strong>[0:02:50]</strong></li> <li>From <em>The Coaching Habit</em> to <em>Elon Musk</em>, we share our latest book reviews. <strong>[0:04:50]</strong></li> <li>Introducing our investing topic: the anatomy of stock returns. <strong>[0:10:00]</strong></li> <li>Exploring how changes to a stock type affect value premiums and returns. <strong>[0:13:40]</strong></li> <li>Why small stocks tend to have high returns compared with big stocks. <strong>[0:17:00]</strong></li> <li>Understanding t