What the price already assumes, and where there is room to disagree
Advanced · Expectations and edge · no code
Level 1: The price is a forecast
The change of viewpoint that separates whoever has an opinion from whoever measures: why a share price is a closed list of assumptions about sales, margins, capital and discounting rather than a vague impression of the company, why getting next quarter's earnings right gives you no edge when that number is already inside the price, where return genuinely comes from once what happens parts company with what was priced in, and which of the three stretches of a valuation (explicit forecast period, terminal value and net cash) really holds almost all the money in a typical S&P 500 company.
Level 2: The value drivers
The four numbers any valuation hangs from: why sales growth is the assumption most often overestimated and what trimming it by two points does to a stock, why the margin that matters is not today's but the one on the additional euro, how much working capital and fixed investment growth really devours and why it is free cash flow that gets discounted rather than earnings, and why half a point of cost of capital moves value far more than anybody is willing to admit.
Level 3: Reverse valuation
The heart of the course: how to work out, step by step and with arithmetic alone, which combination of growth and margin a price is taking for granted; how many years of returns above the cost of capital the market is paying for; three teaching cases solved with numbers (a mature company, a growth company and a cyclical one); and the five mistakes that turn a reverse valuation into a useless exercise.
Level 4: What really moves the price
The level where you stop looking at the result and start looking at the revision: why the price moves on the surprise and not on the level, which value driver genuinely rules depending on the type of business, which news changes an expectation and which is expensive noise, and how to recognize that the market has already revised its opinion ahead of you and your good idea has arrived late.
Level 5: Competition and duration
Why high expectations almost never hold: what return on capital really measures and why it reverts toward the cost of capital, which barriers withstand that reversion and which are pure narrative, why reinvesting only creates value if the new money earns more than it costs, and how to tell a buyback that enriches the shareholder from one that merely covers up dilution.
Level 6: From reading to decision
The level that turns reverse valuation into judgment: how to write a thesis in five lines so that it is an explicit bet and not a fondness, why the refutation criterion has to be fixed before you go in and what happens when it does not exist, why position sizing comes from the gap and from your confidence and never from the gap alone, and what sequence of steps is left at the end to apply to any S&P 500 stock.
Level 7: The four possible edges
The full map of where an edge can exist in a market like the S&P 500: why the informational edge died with electronic filing and fair disclosure rules, what reading the same public information better genuinely consists of and how to check whether you can do it, why the market pays you to bear the discomfort that makes almost everyone else sell, and why a long horizon is the only structural edge nobody can take away from you, provided you genuinely exercise it.
Level 8: What is priced in and what is not
The efficiency hypothesis without the caricatures, and the Grossman-Stiglitz paradox, which requires that something be left over to pay for the analysis; how a piece of news actually enters the price and why the easy part is already done before you read the headline; the limits to arbitrage, which explain why a clearly wrong price can stay wrong for years; and where room genuinely remains, in the corners big money cannot touch for reasons of size, mandate, term or discomfort.
Level 9: Factors
The level that turns the word "factor" into a workable concept: what exactly a shared characteristic that explains the performance of a group is and where the idea came from as models went from a single factor to several, why value and momentum are the two with the longest record and the most replications outside their original sample and what price in years in the wilderness they charge for it, what is genuinely being measured when people talk about quality and why low volatility is an anomaly that theory ought not to allow, and above all how to tell whether a factor pays for taking on real risk or for exploiting somebody else's mistake, which is the question that decides whether it deserves twenty years of your portfolio or none at all.
Level 10: Why it runs out
The level that explains why what used to work stops working: how much return an anomaly loses the moment it is published and how much of that decay was already in the paper before it was told, what happens when half the industry holds the same position and the exit narrows, why the size of assets under management destroys the edge that attracted them, and why only a minority of the hundreds of published factors survive when other people try to repeat them.
Level 11: The structure of the index
The S&P 500 seen from the inside as a source of edge and of risk: who really decides who gets in and with how much room for judgment, what exactly you are buying when you weight by market capitalization and how far concentration has gone, what passive flows do to the price and what they do not (telling ownership from volume, which are not the same thing), and what is left today of the index effect, of rebalancings and of the forced demand others are obliged to execute.
Level 12: A process that survives
The level that turns the previous five into a working method: how a hunch is transformed into a hypothesis the world can disprove, naming who is on the other side and why they are selling to you cheap; the four ways of fooling yourself when checking an idea and why only a record written down before the result corrects them; why a bad run and a dead edge are statistically indistinguishable for years and which criteria let you decide without waiting for the result to speak; and the complete process, numbered and ready to apply, with the map of what comes next inside the academy.