I saw the following statistics in a research memo from Sam Stovall, CIS at CFRA:
Dec 2009 Dec 2019 10-yr. Percentage Change
o S&P 500 Index 1115 3221 +189%
o S&P 500 EPS 152.77 162.78 +7%
o S&P 500 P/E ratio 7.3X 19.8X +171%
These numbers raise certain questions, such as:
· How can EPS growth be so paltry during the last decade?
· Why isn’t EPS growth higher in a period of unprecedented stock buybacks?
· Why isn’t EPS growth higher due to decreasing interest rates during the period?
Valuations were certainly quite cheap in 2009 and are currently quite high. This doesn’t mean the market is going to fall, but reviewing these stats sure keeps one balanced. By balanced, I mean seeing the future from both bullish and bearish perspectives, weighing the evidence, the probability of each scenario occurring, and being ready to react with portfolio adjustments accordingly.
The most important thing is to focus on the long-term. Short-term performance will not produce the results we want. One thing I’ve found is true in stock investing – if you take large risks you will almost always end up with large losses. Taking medium risks, however, pays with very nice rewards in the long-term.
Opinions voiced in this post are for general information only and are not intended to provide specific advice or recommendations for any individual, without complete knowledge of that individual’s total financial profile. No strategy assures success or protects against loss.