Are we in a bubble?

[Fly]

9 minutes ago, Pellom said:

Also, if we are in a "bubble," market makers cannot allow it to pop without being able to monetize their SpaceX, Anthropic, OpenAi, etc., shares. The music must play until they can unload those shares on the public. 

 

This one hits a home run (couldn't resist with the Hank Aaron avatar). The private markets are where the real growth happens now, and it must be monetized in order for the cycle to continue. If/when these 3 IPO and dump on retail it will signal a top in my mind. 

[Gregmal]

2 hours ago, coffeecaninvestor said:

 

There are a handful of companies that are like this ROL comes to mind. But I don't believe multiple compression is a made up thing.. Look at some of the software stocks. COST and ROL are continuing to execute better than any of their competitors.

 

 

 

 

 

 

Multiple compression is largely an after the fact analysis that is selectively applied. People have been waiting for decades to slap the "multiple compression" title on Amazon, Costco, etc...and every time you have a short period where those underperform/dont keep outperforming, that is the prevailing urge...to immediately claim "valuations are catching up to them". Reality is, those metrics arent what drive the returns. And thats the main issue with the "PE" crowd. PE's are basically for simpletons. The reason, is actually quite obvious and makes sense, and that is because any random idiot who's ever looked to buy a stock, in "how to invest 101", hears about how the most important thing is the PE. As such, the PE is quite possibly, the single most disseminated metric for every company, and therefore, the FIRST thing almost everyone looks at. By virtue of that process, it is almost impossible for the market not to be pricing things efficiently on a PE basis. I mean the arrogance one must have, to think that staring at the SAME EXACT metric every single person and their mother immediately goes to, to evaluate an investment, and that this metric is going to be the one that gives them their edge? Downright retartded. It more or less makes it a useless, metric on its own and without context. And yet, even on higher level boards and places like this, far too often, we see investment analysis that rushes to conclusions, based almost solely on drawing a conclusion derived from whether something is "expensive" or not, based on "the PE"...

Edited May 19 by Gregmal

[coffeecaninvestor]

20 minutes ago, Gregmal said:

Multiple compression is largely an after the fact analysis that is selectively applied. People have been waiting for decades to slap the "multiple compression" title on Amazon, Costco, etc...and every time you have a short period where those underperform/dont keep outperforming, that is the prevailing urge...to immediately claim "valuations are catching up to them". Reality is, those metrics arent what drive the returns. And thats the main issue with the "PE" crowd. PE's are basically for simpletons. The reason, is actually quite obvious and makes sense, and that is because any random idiot who's ever looked to buy a stock, in "how to invest 101", hears about how the most important thing is the PE. As such, the PE is quite possibly, the single most disseminated metric for every company, and therefore, the FIRST thing almost everyone looks at. By virtue of that process, it is almost impossible for the market not to be pricing things efficiently on a PE basis. I mean the arrogance one must have, to think that staring at the SAME EXACT metric every single person and their mother immediately goes to, to evaluate an investment, and that this metric is going to be the one that gives them their edge? Downright retartded. It more or less makes it a useless, metric on its own and without context. And yet, even on higher level boards and places like this, far too often, we see investment analysis that rushes to conclusions, based almost solely on drawing a conclusion derived from whether something is "expensive" or not, based on "the PE"...

Not sure my last message was clear/understood. I don't think P/E is the end all be all. It is merely just a simple metric that tell you how much someone is willing to pay for each dollar of earnings. I don't think it really tells you anything about the future, or the companies intrinsic value. I don't think anyone would tell you COST/META/FB etc don't deserve to trade at 30x+ earnings (or any other valuation metric) assuming they continue to execute, grow, and preserve their "Moat". It' tells you nothing in terms of timing, and based on what you are saying forward returns. Which is why it is a terrible investment timing metric. To me it just lets me know there is the "potential" for a re-rating (which typically happens quickly when it starts), and I would rather avoid the unpleasant event, but I would be willing to pay up for a quality company 50x might be too much, but 25x sure.. 

Edited May 19 by coffeecaninvestor

[thepupil]

COST has grown relevant fundamental metrics by 9%-14% over the last decade, 9-14% over last 8 years (to start after TCJA), 9-13% over last 5, 7-11% over last 3 years. 

 

To the extent, COST has made more than those metrics, it's because, rightly or wrongly, the stock's multiples has expanded, specifically, the stock has made 23%/yr / 710% for last decade while it's 1y fwd multiple went from 25x--->50X...if you don't like PE you can use whatever you want (price to sales has gone from 0.6x to 1.7x, EV/EBITDA 12x to 31x, FCF yield from ~3-4% to 1.9%)

 

You can get to that, by just saying at constant multiple it would have done 14%/yr (3.7x) but multiple expanded 100% (2x) =3.7x*2.0x=7.4x = 630% (the stock's price return w/o divvies invested), then divvy reinvestment gets you to 710%. 

 

Now, was it "correct" that Costco traded for 25x in 2016? Well we have more information now. COST durably grew its earnings by 14%/yr for a decade. It seems more than reasonable that something set to quadruple earnings would trade at 25x. Said differently, one was buying cost for a 10 year forward 16% earnings yield...the "equity coupon started at 4% and ended at 16% and shareholders made a shit ton. I'd also point out that 30 yr TIPS yielded 0.9% in 2016. 

 

Today the equity coupon is starting at 2% or so....growth seems a little slower too...where it will trade in 5 or 10 years? I couldn't tell you. today 30 yr TIPS is 2.9%. 

 

Now, I'll humbly admit, I would never have thought we'd see COST trade to its ATH (ish) valuation while 1) the broader market [fueled by AI] is growing faster 2) fixed income offers an actual alternative 3) the world seems....fragile

 

my explanations would be 

1) COST  is an amazing company and those who own it don't need to sell 

2) COST is QQQ's 14th biggest holding and SPY's 20th, passive, valuation agnostic flows. 

3) it deserves a very high multiple...whether that's 25x or 30x or 40x, I don't know. 50x "feels" very high. 

 

WMT trades at 45x...both are AI resistant...both own large share of people's wallet at low profit margin...

 

 

you can plug in next decade growth of 7-15% and next decade exit multiple of 15-50x and you get IRR of -5% to +15%...obviously that's analytical garbage in / garbage out, but it certainly seems more skewed to the downside than ever. I'd swag 11% / yr growth exit @ 30x = 5.5% + some divvies = mid single digits IRR. risk averse types look at that and say no thanks and "scoreboard bitch" types look at the stock price from their yachts....it is what it is....

 

on a near term basis, I'd speculate COST is trading up because people who are long AI/semi's are short cost to hedge out their momentum factor and there's a sell-off in semis so some degrossing from those who've made a lot of money lately so they're covering their COST.....the world is a weird place.

 

 

 

 

 

Edited May 19 by thepupil

[DegenerateGambler]

5 minutes ago, thepupil said:

COST has grown relevant fundamental metrics by 9%-14% over the last decade, 9-14% over last 8 years (to start after TCJA), 9-13% over last 5, 7-11% over last 3 years. 

 

To the extent, COST has made more than those metrics, it's because, rightly or wrongly, the stock's multiples has expanded, specifically, the stock has made 23%/yr / 710% for last decade while it's 1y fwd multiple went from 25x--->50X...if you don't like PE you can use whatever you want (price to sales has gone from 0.6x to 1.7x, EV/EBITDA 12x to 31x, FCF yield from ~3-4% to 1.9%)

 

You can get to that, by just saying at constant multiple it would have done 14%/yr (3.7x) but multiple expanded 100% (2x) =3.7x*2.0x=7.4x = 630% (the stock's price return w/o divvies invested), then divvy reinvestment gets you to 710%. 

 

Now, was it "correct" that Costco traded for 25x in 2016? Well we have more information now. COST durably grew its earnings by 14%/yr for a decade. It seems more than reasonable that something set to quadruple earnings would trade at 25x. Said differently, one was buying cost for a 10 year forward 16% earnings yield...the "equity coupon started at 4% and ended at 16% and shareholders made a shit ton. I'd also point out that 30 yr TIPS yielded 0.9% in 2016. 

 

Today the equity coupon is starting at 2% or so....growth seems a little slower too...where it will trade in 5 or 10 years? I couldn't tell you. today 30 yr TIPS is 2.9%. 

 

Now, I'll humbly admit, I would never have thought we'd see COST trade to its ATH (ish) valuation while 1) the broader market [fueled by AI] is growing faster 2) fixed income offers an actual alternative 3) the world seems....fragile

 

my explanations would be 

1) COST  is an amazing company and those who own it don't need to sell 

2) COST is QQQ's 14th biggest holding and SPY's 20th, passive, valuation agnostic flows. 

3) it deserves a very high multiple...whether that's 25x or 30x or 40x, I don't know. 50x "feels" very high. 

 

WMT trades at 45x...both are AI resistant...both own large share of people's wallet at low profit margin...

 

 

you can plug in next decade growth of 7-15% and next decade exit multiple of 15-50x and you get IRR of -5% to +15%...obviously that's analytical garbage in / garbage out, but it certainly seems more skewed to the downside than ever. I'd swag 11% / yr growth exit @ 30x = 5.5% + some divvies = mid single digits IRR. risk averse types look at that and say no thanks and "scoreboard bitch" types look at the stock price from their yachts....it is what it is....

 

on a near term basis, I'd speculate COST is trading up because people who are long AI/semi's are short cost to hedge out their momentum factor and there's a sell-off in semis so some degrossing from those who've made a lot of money lately so they're covering their COST.....the world is a weird place.

 

 

 

 

 

You hit the nail on the head - multiple expansion is what has happened.  I feel like COST is like KO in 2000 when it traded over 50 PE and Warren Buffett did not sell (and later regretted not selling it).  

Price/Free cash flow yield is also very high for COST as well as price/sales while revenue is growing like 9-12% per year.

It's a quality business - but rings the same ring as KO in 2000.

I also feel this late surge in COST has been algo-driven, since WMT and SFM also traded up a lot.

It would be hard pressed to say COST has been bought from 850 to 1100 by "value investors" who are looking for bargains or even paying a fair price for a great business.

[thepupil]

so here's a fun one...this is the rolling 5 year change in forward multiple from 2010 to present (ie starting in 2015 what was the change in forward multiple from may 2010 to may 2015, june 2010 to june 2015) etc.

 

since the GFC, there has never been a 5 year period in which increasing fwd multiple was not a tailwind to COST investors, which is why value investors and rich people can have had this debate the whole time. the stodgy pocket protector value guy can say "well it won't always be like the last 5 years"...and the rich guy can say "you said that 5 years ago too and i'm richer today than 5 years ago"....it's evergreen. 

 

the median/avg/min/max = 30%,33%,4%,75%....so in your typical 5 year period, you've had [roughly] a 5-7% tailwind from multiple expansion....of course your string that together for 16 years and you have a fwd multipl that goes from 18x to 50x.

 

Edited May 19 by thepupil

[Gregmal]

And this is where the full circle moment occurs, when the value investor type actually maybe starts realizing that they are the ignorant gambler, once again betting on something that hasn't worked, because....this time is different? It's fun for sure. 

[changegonnacome]

31 minutes ago, thepupil said:

COST  is an amazing company and those who own it don't need to sell 

 

Or those that own it have such a low basis that they cant bring themselves to sell it and pay the taxes.

 

A successful stock is a little like a slow rolling short squeeze......if the business performs, the stock follows....in time a lot of holders develop a cost basis/tax induced inertia...the issue with this dynamic for holders is that if the underlying business quality changes even slightly you get a stampede for the exits that can wipe out a decade of gains over a few weeks/months.

 

I suspect a number of very high multiple stocks with relatively slow growing businesses underpinning them -  will leave holders with the feeling that they maybe should have been MORE price sensitive and LESS tax sensitive.

[thepupil]

36 minutes ago, Gregmal said:

And this is where the full circle moment occurs, when the value investor type actually maybe starts realizing that they are the ignorant gambler, once again betting on something that hasn't worked, because....this time is different? It's fun for sure. 

 

well it's funny because you express this in terms of value boiz being complete idiots for caring anything about valuation, when from my seat you bought a high quality, growing business, and sold it somehere in the orange zone which seems like an astute and reasonable and valuation sensitive thing to do....doesn't exactly sound like you're chomping at the bit to buy in the red zone. 

 

 

my stylized graph of valuation risk for COST...this is my life's greatest work.

Edited May 19 by thepupil

[brobro777]

24 minutes ago, changegonnacome said:

 

Or those that own it have such a low basis that they cant bring themselves to sell it and pay the taxes.

 

A successful stock is a little like a slow rolling short squeeze......if the business performs, the stock follows....in time a lot of holders develop a cost basis/tax induced inertia...the issue with this dynamic for holders is that if the underlying business quality changes even slightly you get a stampede for the exits that can wipe out a decade of gains over a few weeks/months.

 

I suspect a number of very high multiple stocks with relatively slow growing businesses underpinning them -  will leave holders with the feeling that they maybe should have been MORE price sensitive and LESS tax sensitive.

 

Yea this is what happened in TTD - for many years it was wonderful and then pow, right in the kisser! In like 6 months it got destroyed, seemingly for good

 

Man watching that kinda stuff gotta give you the heebie jeebies

 

 

[Gregmal]

8 minutes ago, thepupil said:

well it's funny because you express this in terms of value boiz being complete idiots for caring anything about valuation

Nah was just pointing out the irony in that the one time I kind of let myself get carried away with that line of thinking, I made a mistake. 

 

But I mean generally, what is your edge, only paying attention to this single metric, if it's the most easily available, widely disseminated one? Ive always placed way more faith in qualitative, future measures, rather than static, often backward looking ones. 

[thepupil]

11 minutes ago, Gregmal said:

Nah was just pointing out the irony in that the one time I kind of let myself get carried away with that line of thinking, I made a mistake. 

 

But I mean generally, what is your edge, only paying attention to this single metric, if it's the most easily available, widely disseminated one? Ive always placed way more faith in qualitative, future measures, rather than static, often backward looking ones. 

how do you know it was a mistake though? if the stock is below where you sold in 3 years and your other investments have OP'd it, was it a mistake? I mean we never really know what's a mistake. we can only act w/ information we have today. 

 

i don't think anyone here is claiming an "edge" regarding analysis of COST because of its optically high forward  (and trailing) PE's. People are expressing a valid concern regarding a de-rating given it's re-rated positively for 16 years. and bulls are free to counter that when g > r justified PE is infinite and that COST above all business probably has the potential to have a g > r for a really long freaking time (probably not infinite). 

 

it's very easy and most definitely not an "edge" to avoid COST because one requires a higher earnings/FCF/whatever yield and one doesn't want to drawdown if multiples decline...or you can say "de-rating bedamned...still growing at high rate and will do so "forever" so wake me up in 20 years at high returns....(or 1,3,5 years if multiple stays flat or keeps going up)....i don't think either person possesses an "edge" regarding the biz....

 

is anyone really saying they have an analytical edge? or are they just expressing timidity regarding the multiple. the two are very different things. 

Edited May 19 by thepupil

[Gregmal]

4 minutes ago, thepupil said:

is anyone really saying they have an analytical edge? or are they just expressing timidity regarding the multiple. the two are very different things. 

I kind of view it as the same thing. A PE is also ultimately 1) an accounting metric(hence vastly different NTM/TTM/GAAP, Non GAAP/etc), and 2) a lagging indicator.

 

So again, why wouldnt it be more productive to discuss the drivers or the positive/negative tailwinds on the business over the next, say, 3/5/10 years...vs "the PE multiple"? 

 

My gut says it's mainly because PE analysis is easy(anyone can do it) and doesnt take much time. Deep diving on business related subjects is often more difficult and time consuming. I mean the flavor of the day, NVDA, had the same tug of war, maybe 3-4 years ago. There was the crowd gasping at "the PE" and the future oriented folks. And turns out that assessing the business prospects might've allowed one to conclude the "expensive" stock was actually pretty cheap a few years out. 

[thepupil]

1 minute ago, Gregmal said:

I kind of view it as the same thing. A PE is also ultimately 1) an accounting metric(hence vastly different NTM/TTM/GAAP, Non GAAP/etc), and 2) a lagging indicator.

 

So again, why wouldnt it be more productive to discuss the drivers or the positive/negative tailwinds on the business over the next, say, 3/5/10 years...vs "the PE multiple"? 

 

My gut says it's mainly because PE analysis is easy(anyone can do it) and doesnt take much time. Deep diving on business related subjects is often more difficult and time consuming. I mean the flavor of the day, NVDA, had the same tug of war, maybe 3-4 years ago. There was the crowd gasping at "the PE" and the future oriented folks. And turns out that assessing the business prospects might've allowed one to conclude the "expensive" stock was actually pretty cheap a few years out. 

 

lol at the NVDA example...I mean, yes, when earnings go from $10B to $200 billion in 5 years, P/E (of any kind, trailing 1 yr, 2, yr) doesn't matter...that hardly seems relevant. 

 

 

 

[Intelligent_Investor]

The problem with PE is that it cannot accurately value something with compounding growth. It is basic math meant to value something with zero growth and a bondlike payout

[Gregmal]

2 minutes ago, Intelligent_Investor said:

The problem with PE is that it cannot accurately value something with compounding growth. It is basic math meant to value something with zero growth and a bondlike payout

Ding, ding, ding. We have a winner. Theres no shortcuts when investing. 

[DegenerateGambler]

For straight forward businesses, you can use the PEG ratio (PE/Growth), the lower the better.  I mean only for straightforward businesses that doesn't change much, for tech obviously you have to be astute about future prospects.

[thepupil]

so what do you all propose as an alternative? DCF? (P/E is a shorthand DCF) TAM based analysis (like: assume COST inevitable takes x% of y% of affluent peoples spend at z% margins, discount to present, two step DCF? no quantification of risk/reward and just own forever? educate the PE focused simpletons as to how one might frame the risk/reward of COST...

 

to be clear, almost nothing i own has a low PE or is an operating company...i don't sort by PE to pick stocks....but i just don't understand how one wouldn't consider the price paid relative to T12, 1y fwd, 3y fwd, 5 yr fwd 10 yr fwd earnings, exit multiples, etc in thinking about a stock.

Edited May 19 by thepupil

[Gregmal]

4 minutes ago, thepupil said:

so what do you all propose as an alternative? DCF? (P/E is a shorthand DCF) TAM based analysis (like: assume COST inevitable takes x% of y% of affluent peoples spend at z% margins, discount to present, two step DCF? no quantification of risk/reward and just own forever? educate the PE focused simpletons as to how one might frame the risk/reward of COST...

 

to be clear, almost nothing i own has a low PE or is an operating company...i don't sort by PE to pick stocks....but i just don't understand how one wouldn't consider the price paid relative to T12, 1y fwd, 3y fwd, 5 yr fwd 10 yr fwd earnings, exit multiples, etc in thinking about a stock.

All the above. Market is not static. Tailwinds vs headwinds. Growth opportunities. Track record of management. Potential competition. I'd probably buy something with a proven track record, clean balance sheet, that has multi/year macro tailwinds, high margins, embedded growth opportunities, and capable operators without spending more than a few minutes on the PE. 

 

But yes, there is no "formula" which is what the above seems to be implying in terms of what it's asking. 

[73 Reds]

20 minutes ago, thepupil said:

so what do you all propose as an alternative? DCF? (P/E is a shorthand DCF) TAM based analysis (like: assume COST inevitable takes x% of y% of affluent peoples spend at z% margins, discount to present, two step DCF? no quantification of risk/reward and just own forever? educate the PE focused simpletons as to how one might frame the risk/reward of COST...

 

to be clear, almost nothing i own has a low PE or is an operating company...i don't sort by PE to pick stocks....but i just don't understand how one wouldn't consider the price paid relative to T12, 1y fwd, 3y fwd, 5 yr fwd 10 yr fwd earnings, exit multiples, etc in thinking about a stock.

At the risk of getting thrown of this board, numbers are the very last thing I look at when it comes to equity investing.  Dominance, widespread need of a company's products and services, long runway, optionality and quality of management are always what I look for first.  Most often a stock has to literally jump off the page and hit me before I take any interest at all.  Numbers (ratios, etc.) are indeed very accurate in the past, usually accurate in the present but highly inaccurate as projections into the future, particularly more than a few quarters or years out.  If your investment time horizon is short, today's reported numbers and estimates mean much more because you are merely renting a stock.  Otherwise, if you're looking for a business partner, today's numbers and estimates have little to do with long term success. 

Edited May 19 by 73 Reds
words

[thepupil]

27 minutes ago, 73 Reds said:

At the risk of getting thrown of this board, numbers are the very last thing I look at when it comes to equity investing.  Dominance, widespread need of a company's products and services, long runway, optionality and quality of management are always what I look for first.  Most often a stock has to literally jump off the page and hit me before I take any interest at all.  Numbers (ratios, etc.) are indeed very accurate in the past, usually accurate in the present but highly inaccurate as projections into the future, particularly more than a few quarters or years out.  If your investment time horizon is short, today's reported numbers and estimates mean much more because you are merely renting a stock.  Otherwise, if you're looking for a business partner, today's numbers and estimates have little to do with long term success. 

 

so i get what you're saying....but if someone asked me, without having a week or a month or a year to study the business and predict what the next 10 years of COST's revenue/EBITDA growth might look like....I might just might take into account its history of 1992 to present where its bounced around from 7-11%...like we have 34 years of data. i think that data has some informative value as to the future.

 

to be clear, i think one could make an intellectual argument as to why COST's record justifies it trading where it does or why go forward might be better/worse than past or whatever....using their superior insight/prescience/deep study of business / whatever....but this exercise is by no means completely divorced from financial data and numbers (IMO). at an extreme, if COST traded for 500x, we wouldn't just say "well it's a good business"...just like value boys would never demand a 15% FCF yield or someonthnig ridiculous from COST

 

i think the initial #'s are a first pass or set the hurdle one must clear.....like obviously the market is saying this is a great biz w/ long duration of earnings compounding ahead of it...so as a potential owner you have to get confidence in that (using all the qualitative stuff) AND get some sense for how much you're going to get paid if you're right or lose if your wrong [this last piece i don't understand how one can do without the recent, future numbers and some range of potential future multiples]

 

to gregmal's point, COST is actually such a consistent business that it's very easy to throw numbers in the spreadsheet and swag things...

 

anyways...way too mcuh ink spilled for me today on a stock i've never touched.

 

 

10 yr rolling periods, 1992-2002,1993-2003 and so forth

 

Edited May 19 by thepupil

[73 Reds]

7 minutes ago, thepupil said:

 

so i get what you're saying....but if someone asked me, without having a week or a month or a year to study the business and predict what the next 10 years of COST's revenue/EBITDA growth might look like....I might just might take into account its history of 1992 to present where its bounced around from 7-11%...like we have 34 years of data. i think that data has some informative value as to the future.

 

to be clear, i think one could make an intellectual argument as to why COST's record justifies it trading where it does or why go forward might be better/worse than past or whatever....using their superior insight/prescience/deep study of business / whatever....but this exercise is by no means completely divorced from financial data and numbers (IMO). at an extreme, if COST traded for 500x, we wouldn't just say "well it's a good business"...just like value boys would never demand a 15% FCF yield or someonthnig ridiculous from COST

 

i think the initial #'s are a first pass or set the hurdle one must clear.....like obviously the market is saying this is a great biz w/ long duration of earnings compounding ahead of it...so as a potential owner you have to get confidence in that (using all the qualitative stuff) AND get some sense for how much you're going to get paid if you're right or lose if your wrong [this last piece i don't understand how one can do without the recent, future numbers and some range of potential future multiples]

 

to gregmal's point, COST is actually such a consistent business that it's very easy to throw numbers in the spreadsheet and swag things...

 

anyways...way too mcuh ink spilled for me today on a stock i've never touched.

 

 

10 yr rolling periods, 1992-2002,1993-2003 and so forth

 

Sure, past data is very meaningful for businesses that otherwise meet my personal investment criteria.  But everyone has their own style and weighs different factors and metrics accordingly.  For me superior management trumps everything because of not wanting to have to babysit management and fuss over every quarterly earnings report.  When unable to figure it out quickly, its a pass (and I've passed on a lot of winners).  But unlike professional money managers, there is no one to please but ourselves and there is always a wide open investment universe.

[NnnnotSoSmart]

Was reminded of Jeremy Siegel's  1998 "The Nifty-Fifty Revisited" paper (copy attached) where he challenged the market consensus view that the premier growth stocks of the early 1970s had been driven to completely unwarranted, bubble-induced valuations. Tracking the performance of these 50 institutional favorites from their December 1972 market peak through August 1998 (26+ years), Siegel suggested that a diversified portfolio of these stocks actually matched or slightly exceeded the long-term returns of the broader S&P 500. Ultimately, he concluded that while investors must avoid overpaying for individual "bad apples" (hard to do), a premium valuation (such as a 40+ P/E ratio) is structurally justified for a rare breed of elite, dominant companies capable of sustaining double-digit earnings growth over multiple decades.

 

Note that in Siegel's table below, a number of the tech names of the day (IBM, Xerox, Kodak, Burroughs, Polaroid, etc) had some of the worst performances after the 1972 peak, whereas consumer product and pharmaceutical stocks reside at the top of the list. 

 

Is this time different?  Probably.  

 

P.S. There's a high probability I'll be dead in 27 years. I can't afford to wait that long!

 

.

 

577058914-valuing-growth-stocks-revisiting-the-nifty-fifty.pdf

Edited May 19 by NnnnotSoSmart

[thepupil]

Funny part is he wrote that in 1998, then a lot of those stocks had bad returns for the next decade or so….i demand a revisiting of the revisiting lol

[Parsad]

9 hours ago, Spekulatius said:

The fact that stock market capitalization is so much higher than in 1999 relative to the size of the economy is just further evidence of a bubble. That why I used approximate 2025 dollars. Also, when you look at fiber optics Capex spent as a percentage of GDP, it was about 1.5% back then and now we are pushing 4%.

 

By most objective measures, this AI boom is ~3x the size of the Y2000 telecom boom, normalized for growth the economy since then.

 

You have far more money in private equity, hedge funds, ETF's, underground, BTC, etc...Market Cap to GDP gives you some comparative, but it is no longer equal.

 

Also, part of the problem with fiber optics was that too much was spent developing network cables and very little was lit for the better part of the next decade.  There is an enormous shortage for high level chips and components...it's the opposite of the internet actually...demand is exceeding supply and is being used immediately.  Rare earth minerals are being restricted...chips, magnets, etc can't be made fast enough.  

 

Capex back then also didn't include huge amounts being spent on energy infrastructure and data centers that are needed to support AI computing.  The difference is building a highway, and now building the cars, fuel stations, garages, warehouses, parts manufacturers and traffic light system to run the whole thing.  Capex is naturally going to be higher.  Cheers!