There is an extremely interesting column at MarketWatch from Philip Van Doorn. I’ll bet you weren’t aware of this:
Here are some interesting numbers about the S&P 500, according to data provided by FactSet.
• Among the S&P 500, 250 stocks were down 20% or more from their all-time closing highs (adjusted for splits and spin-offs) as of the close on Oct. 15.
• 162 were down at least 30% from their all-time highs.
• 113 were down at least 40% from their all-time highs.
• 69 were down at least 50% from their all-time highs.
Another interesting little factoid. Of the 26 S&P stocks that have reached all-time highs in the last five years, all have declined by 50% or more since then.
As I have been pointing out for some time, when you say “the stock market is at an all-time high”, what you’re really saying is that a handful of stocks are more important than ever. Too big to fail, anyone?
Aside from the too big to fail angle…
I haven’t understood public equity valuations for quite some time. What are we, 24x? But in pondering this (and hat tip to you and comments on FANGS) in a blinding flash of the obvious, at a FANG/Go Go stock multiple of 50x I realized the lower valuations of (250) stocks is definitional.
So what does this mean in practical terms? If you own an S&P index fund you have bubble exposure. If you hold individual, non-Go Go issues, much lower exposure.
Value investing lives.
Further…………..
The real answer is that growth is hard, especially the last 10 years. Investors have made a judgment that paying up for growth is OK. Hence, big multiples. I’m not endorsing it. I’m recognizing it.