Imagine for a moment it’s 2009 at the tail-end of the Great Financial Crisis, and I’m telling you to get aggressive with your investment strategy.

The economy just went through its worst recession since the Great Depression. At its worst point the U.S. stock market was down 55% from its all-time high in 18 months’ time.

If you were lucky enough to keep your job your salary’s been frozen or even cut. Your home value has decreased dramatically when everyone was saying for years that home values never decline. Family and friends around you are in dire straits as they’ve lost their jobs and their homes. 100+ year-old financial institutions have failed. The government is printing trillions to bail out some of these companies the terms of which are being decided by unelected bureaucrats behind closed doors on weekend evenings when the markets are closed with no transparency. Folks are “occupying” Wall Street to protest bailouts for the “1%.”

If you were like most people around that time and had significant investments then the pain was getting severe and you either sold stocks or were seriously considering it to cut your losses.

I enter our review meeting. I tell you not only should you not be selling your stocks but should consider buying more!

Am I nuts? Inexperienced? Am I not paying attention to what’s happening in the world?

I don’t have to imagine this because this is exactly what was happening throughout 2008 and 2009. In fact, because I was relatively young and relatively new in the industry back then, I was getting lectures about this recommendation. Telling me I didn’t know what I was doing and that I was too young, too inexperienced and too aggressive. I remember one such meeting vividly with one of our clients who was also one of the firm’s accounting partners.

Luckily, most clients did end up listening to me/the team, avoided the temptation to sell and did very well over the coming years. The few that sold took a long time to get back in and missed out on a lot of the recovery.

Was The Recommendation Justified or Lucky?

Was the recommendation to hold / buy more justified or reckless and just got lucky? Let’s look at the facts known to us at the time.

As of 6/30/2009, the S&P 500 was trading at $919 per share. Meanwhile, the sales per share was $943. So, the S&P 500 was trading at less than 1x sales…(remember this fact for later).

Sales grow at about 4% annualized over the long-term, which implies sales per share for the S&P 500 would be about $1,500 in 12 years (6/30/2021). Sidenote: S&P 500 sales per share as of June 2021 was $1,462…so pretty darn close.

Long-term profit margins are about 8%-10% so that implies earnings on the S&P 500 in 12 years of about $120-$150 per share assuming $1,500 of sales.

Long-term price-to-earnings (PE) multiple is about 17x, which implies the S&P 500 might be trading around $2,550 in 12 years on 6/30/2021.

That is a 177% total increase in the S&P 500 over 12 years, or 9% per year. Then add the 2.8% annual dividend for a ~13% projected total annualized return.

My recommendation was grounded in this analysis and time-tested principles. Why sell good assets at relatively low prices? We just had to be willing to eliminate the obsession with short-term returns over the next week, month, quarter or even year and, instead, see the big picture of the full market cycle.

The S&P 500 actually exceeded those projections by over 3% per annum with an actual annual return of about 16% (gross) producing one of the greatest bull markets in history.

Sales for those twelve years didn’t even grow at 4% annualized but at a lower 3.7%. The reason the market outperformed the projection is because the PE multiple ended so much higher than the long-term average at the end of the period (30x vs. 17x) and profit margins as of 6/30/2021 were actually about 11% instead of 8%-10%.

Applying The Same Analysis Today

As of 6/30/2021 the S&P 500 sales per share was about $1,462. Applying a 4% annualized growth rate implies sales of $2,340 in twelve years.

Profit margins of about 8%-10% implies earnings of about $187-$234.

A price-to-earnings multiple of 17x implies an S&P 500 level of about $3,180-$3,980 in twelve years, or 15% to 32% lower than today!

Add an annual dividend of about 1.3% and investors will be lucky to breakeven on U.S. stocks over the next twelve years. A 12-year period with approximately zero return on U.S. stocks? Essentially a lost decade? Yes, it’s possible and it’s happened several times in the last 90 years. What do all those lost decades have in common? They all began with extremely stretched valuations.

However, we don’t know exactly what sales growth, profit margins or PE multiples will be in 12 years, which is why I use a matrix to show various scenarios.

Notice all the “red” in the matrix above. Now let’s look at the same analysis but as of June 2009 (below) for contrast. Notice all the “black.”

From mid-2009 if sales grew at just 3% and margins ended at just 6% and PEs were at just 14x (far upper left box in matrix below) your returns would be better than the next twelve years even if sales grew at 5%, margins ended at 12% and PE was at 20x (far lower right box in matrix above).

Which period presents a better investment opportunity for U.S. stocks?

The prospects for returns in U.S. stocks over the next twelve years are extremely poor. We are in the opposite situation today than we were in 2009.

Above I pointed out that the S&P 500 was trading at less than 1x sales on 6/30/2009. Today, the S&P 500 is trading at more than 3x sales…a record!

The problem is that people tend to operate emotionally making it difficult to be objective during both manias and depressions.

At bottoms they want to sell good assets at low prices because it’s been too painful for too long and there’s no end in sight. They can’t take opening the account and seeing losses week in and week out.

In manias they want to buy more poor assets at high prices and chase performance because they project the recent past into the future without consideration of the data, history and fundamentals. They see people around them making a bunch of money. They can’t take opening the account and seeing only modest gains while CNBC, friends, and neighbors keep talking about the sensational stories.

To be a successful long-term investor be disciplined, be patient, trust the process and let go of the obsession with short-term returns.

Buy low, sell high.



Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.

Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much of the data used to interpret the markets and forecast returns are often at odds with each other and can result in different conclusions. Many different factors impact prices including factors not mentioned here.

This is not investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances and financial goals is completed.

Views provided here are current only as of the moment of posting and are subject to change at any time without notification.

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