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The market indeed seems to put rather little value on growth these days. Example: Google. Their p/e ratio of 30 seems low if you assume that they will keep gro

The market indeed seems to put rather little value on growth these days. Example: Google. Their p/e ratio of 30 seems low if you assume that they will keep growing like they did for the last ten years. Which was about 19% annually. At a p/e of 30, to outperform a ten-year bond at current rates, they would have to only grow at about 3% or so from now on.

worik 2y ago
> Their p/e ratio of 30 seems low if you assume that they will keep growing like they did for the last ten years. Yes. So the P/E ratio is a bit high?
JumpCrisscross 2y ago
> At a p/e of 30, to outperform a ten-year bond at current rates, they would have to only grow at about 3% or so from now on This implies zero equity risk premium, to say nothing of single-stock risk.
- ArtTimeInvestor 2y ago
  There is no asset without risk. If you hold bonds, you are long fiat. Which can be devalued on a whim. Avoiding single-stock risk is simple. You buy another stock.
  - JumpCrisscross 2y ago
    > no asset without risk That doesn't follow in any way from the concept of a risk premium [1]. [1] https://en.wikipedia.org/wiki/Risk_premium https://en.wikipedia.org/wiki/Risk_premium
    - ArtTimeInvestor 2y ago
      Exactly. The "risk free rate" does not exist when it comes to the purchasing power of an asset. And the purchasing power is what matters to an investor. The 4% bonds pay you might be somewhat "risk-free" when it comes to "getting your investment back and 4% on top of it". But it is likely to have been devalued. And often to a large extend.
      - JumpCrisscross 2y ago
        This is not what equity risk premium means. (You also seem to be misunderstanding the role of a risk-free rate, which is commonly understood to not mean with absolutely zero risk whatsoever.) A good introductory finance text is Fabozzi’s Fixed Income.
        ArtTimeInvestor 2y ago
        If you have a point, state it. Just claiming "You are wrong, educated yourself" won't get us anywhere. I think that you are wrong just like you think I am wrong. But I am willing to discuss it.

worik 2y ago

> Their p/e ratio of 30 seems low if you assume that they will keep growing like they did for the last ten years. Yes. So the P/E ratio is a bit high?

JumpCrisscross 2y ago

> At a p/e of 30, to outperform a ten-year bond at current rates, they would have to only grow at about 3% or so from now on This implies zero equity risk premium, to say nothing of single-stock risk.

ArtTimeInvestor 2y ago
There is no asset without risk. If you hold bonds, you are long fiat. Which can be devalued on a whim. Avoiding single-stock risk is simple. You buy another stock.
- JumpCrisscross 2y ago
  > no asset without risk That doesn't follow in any way from the concept of a risk premium [1]. [1] https://en.wikipedia.org/wiki/Risk_premium https://en.wikipedia.org/wiki/Risk_premium
  - ArtTimeInvestor 2y ago
    Exactly. The "risk free rate" does not exist when it comes to the purchasing power of an asset. And the purchasing power is what matters to an investor. The 4% bonds pay you might be somewhat "risk-free" when it comes to "getting your investment back and 4% on top of it". But it is likely to have been devalued. And often to a large extend.
    - JumpCrisscross 2y ago
      This is not what equity risk premium means. (You also seem to be misunderstanding the role of a risk-free rate, which is commonly understood to not mean with absolutely zero risk whatsoever.) A good introductory finance text is Fabozzi’s Fixed Income.
      - ArtTimeInvestor 2y ago
        If you have a point, state it. Just claiming "You are wrong, educated yourself" won't get us anywhere. I think that you are wrong just like you think I am wrong. But I am willing to discuss it.