At present, our most reliable valuation measure (based on correlation with actual subsequent S&P 500 total returns over a century of market cycles) stands at the highest extreme in history.
Despite record valuations, and, in my view, wildly over-optimistic analyst expectations for profit margins, we should be emphatically clear: our concerns about valuations do not imply any forecast for near-term market behavior.
My impression is that Wall Street analysts have adapted to the rising profit margins of recent years by assuming that this diagonal trajectory is simply a new “structural” feature of corporate earnings.
Everything has causes and conditions, and there’s rarely only one cause, one thing to credit, one thing to blame.
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Price is what you pay. Value is what you get.
– Benjamin Graham, as related by Warren Buffett
The defining feature of a Ponzi scheme is that it persuades investors to pay for
