Rookie Investor;335395 wrote:
You are using a mere few months of US under-performance to prove some point? what about the YEARs of OUT-performance of the US market, despite seemingly high valuations 5 years ago or 10 years ago?
This Rookie stayed invested throughout. I think you need to stop thinking in extremes; this can do damage and it is not clear US valuations are extreme. High, perhaps, but extreme? No. You need to consider that businesses have changed a lot since even the last few decades.
For example companies are not as capital intensive as they once were, more of their "CAPEX" is in the form of R&D, and thus inflates PE ratios in return for a meaningful future earnings growth. Perhaps much of it is being priced in now, who knows. But I would be VERY careful using PE ratios as a benchmark for valuation risk and making investing decisions.
I can not believe we keep having the same repeat discussions on this on this fairly basic topic. Bring some actual investing analysis to the table then we can have a meaningful discussion. What you bring is not even investing101 material.
I'm making the point that we are at an extreme of 'exceptionalism' thinking. This empirically is not a good indicator for future returns.
We have all benefited from the rise in the US this past decade, however that cant go on forever. The S&P was on a CAPE of 13x in 2009. Its now 38x, that's 3 times more expensive than when it started this great boom. Fabulous for anyone holding a world index. However if you look at why that expansion took place, its was two things 1) really low starting value and 2) exceptional earnings growth.
The problem now is 1) really high starting valuation, 2) okish earnings. Completely different starting point for likely future returns. Earnings growth in my view are not as good as the great boom leading up to COVID (naturally huge companies cant double in size as well as they could when smaller). So you are essentially relying on 'its different this time' to justify an overallocation to what has done best in the past when today the starting position is entirely different. Good luck with that, not a bet I'm willing to make. As I've said several times, capital preservation is key for me having made excellent returns over the past few decades. When the circumstances changes, my investing changes.
On the point of R&D, capex investment, etc it may be correct to say that today's valuations are higher than the past or justifiably higher than other sectors / countries. But that's simply first level thinking to say that the entirety of the valuation difference can be attributable to better run companies. Second level thinking is to say, yes a multiple expansion is justified but is it the entirety of the difference? I think in reality the tech sector probably deserves a premium, its simply not the entirety of the difference. So say a 10-30% difference not the 100-200% difference that exists. Accounting for this, the sector is probably still grossly overvalued.