Every time I see charts like this I ask why people don’t add an important component - weight of tech in S&P500 over time.
More profitable companies with better balance sheets deserve higher valuations.
Imagine you have 5 apartments that you rent out with 5% yield. Average apartment you bought for 500.000$, rental net income 25.000$ per year. Sometimes real estate prices rise, sometimes fall, and you know that it now the apartment sells for 700.000, it usually meant it will not appreciate or even fall in value in the next 5 years.
Then you started to buy 800.000$ apartments that yield you net 10%, 80.000$ per year.
Now you have 5 of them.
Average price of your apartments is 650.000$ now.
Most investors will be happy to have more of these in the portfolio, since the return is better.
However, if we use the same approach as in the stock chart, one could say “well, average apartment in your portfolio is now 650.000$, so you must expect losing money in the future”.
No, if you have more of these higher-yielding apartments that yield you 10% on 700.000 apartments.”
Post #20105
170
Blanc Charts Valuation isn't a timing tool. It's an expectations tool that can inform how much margin for safety you have across time. When valuations are high expectations are high and sequence risk increases. When valuations are low expectations are low and sequence…