“Our most reliable gauge of valuations exceeds every point in history, including 1929 and 2000, except for 6 weeks surrounding the 2022 peak.”Dr. John Hussman

As you know, I highlight stock market valuations frequently. This is because for long-term investors (not gamblers and speculators) this is all that matters -> the price you pay for a given cash flow.

And we are, in fact, long-term investors with the goal of becoming and remaining financially independent. Our portfolio is simply a tool to help us achieve that goal.

The S&P 500 has been on a tremendous run the last 8 months, which has now pushed it’s valuations back above the 1929 peak on the eve of the Great Depression and well above the 2000 peak on the eve of the Dot-Com Bubble burst.

20% of the market’s run of the last eight months has been from a single stock…Nvidia.

Dr. John Hussman shared an update to the most reliable valuation metric (posted below). Remember that we only care about “reliable” metrics meaning those that actually have a high correlation to subsequent 10-12 year returns.

stock market valuations, S&P 500 valuation, future returns

Below is a chart that plots the valuation metric above with the returns for the next twelve years from each data point to show the relationship between the two in case there was any doubt as to the validity of this particular gauge.

The higher the price you pay, the lower your future returns.

valuation regression, projected returns

Then, of course, there is my matrix of forward returns the detail of which now have a permanent home on my website and is updated every three months.

Projected Financial Returns

 

 

 

Disclosures:
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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