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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


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.


Chart of the Day

Stocks Since 1900

Feast your eyes on the past century of wealth-building delivered to investors courtesy of the U.S. stock market. Remember, the advance is permanent, and the declines are temporary. Two steps forward, one step back. Three steps forward, two steps back. It was ever thus.

Video of the day

Analyzing Gold Breakout

Gold and Gold Mining stocks are breaking out Thursday, watch this clip from Thursday’s Halftime Report where the Coaches analyze the technical conditions in Gold and the potential moving forward

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.

At the Closing Bell 3:00 PM EST

Join Mark Justice each Friday as he covered the world of commodities and takes questions at the closing bell of the market.

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