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Tackle Today: Why I Don’t Care About Valuation in the Long Run

April 16, 2021

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It All Comes Out in the Wash

Traders,

Stocks are the ultimate wealth generator. If someone with a long time horizon asks me when the best time is to buy them, my answer is always “now.” History bears out the wisdom of this response. The longer your sit in cash, the greater your underperformance.

But what about the fact that the market currently boasts a stratospheric P/E ratio?

Eh, I don’t care.

It might lower my returns over the coming five years, but it might not. I can think of two silver linings that come with lower returns if we do indeed follow a more bearish path.

One: I get to buy more stocks at lower prices. Those of us in the accumulation phase of life root for crashes and corrections. They allow each dollar invested to scoop up that many more shares.

Two: Do you know what follows periods of below-average returns? Periods of above-average returns.

If markets suck over the next five years, then the P/E ratio will necessarily shrink, putting us into a position of cheap markets. That will, in turn, raise forward return expectations.  

And guess who will be there to collect on those above-average returns?

Me and all the other dedicated investors who keep their eyes on the prize.

#TeamTackle


Chart of the Day

Stocks Since 1900

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Analyzing Gold Breakout

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