Everyone always dismisses this one.
Here’s 75 years of history clearly showing that the higher the price you pay, the lower the return you’ll get. 👍
Yes, the world has changed a lot since 1950, but human nature hasn’t changed one bit.
People get excited, they push up prices, and in doing so they lower their future returns. That’s a fundamental truth no one can argue with.
Company earnings will be whatever they will be — and they are not influenced by what you pay to become an owner. 😊
Everyone can find great companies (NVIDIA, Apple, etc.). But investing is about not paying too much for them.
Multiples have justifiably risen in recent decades because companies became more “asset-light.” They didn’t need to invest much capital to grow.
But that’s changing now.
Hundreds of billions of dollars are being poured into tangible assets (data centers), and debt levels are climbing to finance these investments.
That’s exactly how companies operated in the 1950s. 🏭
What’s the difference between a data center in 2025 and a factory in 1950...
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The graph above shows one square for each quarter from 1950 through late 2015, a total of 260 quarterly observations. Each square represents the S&P 500 PE ratio at the time and the yearly return (excluding inflation and dividends) over the following ten years.