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"Markets can remain irrational longer than you can remain solvent" Or perhaps the more apt way of putting this in our times is: "Multiples will be crazy high a
by YZF 10y ago
"Markets can remain irrational longer than you can remain solvent"
Or perhaps the more apt way of putting this in our times is:
"Multiples will be crazy high as long as central banks keep interest rates crazy low"
Rather than thinking about this in terms of bubbles I think it's fair to say that the probability of getting very high ten year returns on the US stock market at these valuations is low. The problem is there's no other asset that will give you the chance of a better return. That's no coincidence.
Apple's P/E is 10.85 according to Yahoo Finance. That's low given current interest rates.
EDIT: The average Nasdaq P/E is 22.55 ... This is historically high but is ~4.4% vs. the 10 year treasury being 1.61% (and I say that painfully as I attempted to go short at one point). That is basically the story right there.
- lamontcg 10y agothe flip side is that bull markets always "climb a wall of worry". and in the larger market this has been a fairly anemic bull market, there still isn't a whole lot of froth outside of silicon valley.
- samfisher83 10y agoMarkets are future looking so you use future p/e if you have negative outlook on apple margins then its not a 11 p/e.
- JumpCrisscross 10y ago> Multiples will be crazy high as long as central banks keep interest rates crazy low I have no idea how earnings multiples wound up with their pay-offs in the denominator. (Since it makes stupid things look bigger, and by default, anecdotally, most people agree bigger is better, I'm going to blame investment bankers.) Thinking of a 22.55 P/E as a 4.4% E/P, i.e. 2 percentage points above the 30-year's 2.4% [1] is hugely clarifying. (I personally prefer the Shiller CAPE [2] for long-term broad-market assessments. It sits at 25.93, i.e. a 3.9% yield or 1.4 percentage points over the 30-year.) [1] https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i... [2] https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-e... [3] http://www.multpl.com/shiller-pe/ http://www.multpl.com/shiller-pe/
- crystaln 10y agoMarkets factor in growth.
- eru 10y agoJumpCrisscross was talking about using 1 / n instead of talking about n directly.
- ScottBurson 10y ago> I have no idea how earnings multiples wound up with their pay-offs in the denominator. Same way as with miles per gallon.
- JamesBarney 10y agoI totally agree. Companies price is directly related to future expected cashflows. Its perfectly rational to discount future cash flows by the interest rate. If no one in the economy wants to spend money, its not as expensive to borrow it.