You are right but partly... if you remove the "magnificent seven" the PE of the 493 other companies is about 16.. The SP 500 current PE doesn't reflect the true valuation of the market

So true. This is the thinking that led to the ‘nifty fifty’ collapse in ‘73

I watch nearly all your videos Sven, this one could very well be the most important one you've done IMO... Not that you need to hear my opinion, but very well done. Thank you!!

Yeah seven but we're in a new market now. Ai is going to be everywhere in about 10 years. There will be Optimus Tesla robots, chat gpt 500, automated college professors, flying toilet bowls, etc

Thanks Sven - U R the hardest working sensible person teaching at the moment. Impressive output. We appreciate it

Love it! Semiconductors and chips are clearly leading the way… I think this tech bull market continues well into 2025

Love this type of video Sven! Speaking the absolute truth and backing it up with facts! Most people don't understand the risks and what might happen in this current market. Great Video!

P/E doesn't matter until growth stagnates then: ☠☠. Bought TSMC at $62, sold this week at $181, could it double from here? Sure, but I don't have enough balls to hold for that.

We don’t know what will precipitate the reversion but human nature hasn’t changed . Lots of giddy people all in. I retire next year and I’ve been selling everything that isn’t nailed down .

My personal bubble indicator is the german main stream media. Talking a lot about stock market like in the early 2000 right now. No more articles in «Bild» and it´s time to go all in 😊

I have been following your videos for a long time and this has been the best video, rational and informative. Thanks!

Thanks Sven for explaining your investing background as well, its always help to have some insight into the experience of the person you are getting advice from as everyone of us is biased to some degree depending on when we are born.

I think besides what people mention about the disproportionally of the magnificent seven, I think you don't account for the financial literacy and access to financial markets that did not exist in 2002 or even 2008. This channel is such representation, a few years ago people couldnt even buy fractional shares, to get a broker was hard and you paid inactive fees, you basically had no youtube financial education, etc.. The more people understand the modern financial and economic policy the higher the PE should be, many employees and people no longer buy shares they go for ETFs. You look at the covid crash and that was a blip, the rebound was fast. So we need liquidation events but if most of the inflows are in the form of etfs, "value" investing will be less about looking at the financials but more at understanding economic opportunities and competent execution by leadership, assuming we dont go back to the 80's & 90's and we get in a period of high interest rates.

Hey Sven, thanks for the great content always! But it seems that KZfaq only talks about what to buy and not to buy never about how to structure your portfolio, how much to allocate for each stock, sector and cash. When to buy, sell, cut losses or take profits. As a beginner Value investor I would like to learn more about these fundamentals.

Good information, thank you!

1. We do not think you can compare the 1930s, 40s, 50s etc with 2010 onwards as TECHNOLOGY has made it a lot easier for the general person to buy stocks, as well as seeing the benefits of owning a stock, which in turn pushes the PE upwards. 2. Even though most of the companies (AIG, Exxon, Pfizer etc.) enlisted had high PE in 2000 they still rank high when it comes to ROI. 3. Tech stocks have always had a high PE ratio so PE differs from sector to sector and cannot be generalized.

We should be adding long term us bonds as a hedge. Potentially also low correlation stocks with the overall market that make money on the back of volatility such as flow traders and virtu financials.

I have followed what you said years and years ago, look to the book value if you are going to hold long term. Also, anychance you could do another video on price to book ratios again?

Great video. But this time it’s different though. This time it will last forever 😛

Yeah if you look at only Schiller PE ratio the current level predicts 3.5% per annum with a 1.5% standard deviation over the next 15 years. 😔

Big mistakes on your main PE ratio cycle chart: it's 15 years (1949-1965) and 17 years (1965-1982) not 25 years and 27 years.

The everything bubble is here, watching for the next big short !

Highly rated shares point to rosy expectations of high rate of growth, but if that growth doesn't grow as fast as the market expects, their multiples will get de-rated and at the same time the share price will get a second hit on a reduced EPS. I quite like situations where a share is lowly rated where there is scope for multiple re-rating if its earnings can grow faster than expected and when I am wrong the downside is limited. The bottom line, successful investing involves getting two right: 1) pay the right price and 2) get the future prospects right.

Why do some people say that PE does not matter if the very point of value investing is buy something at a lower price compared to its true price.. They will get into nasty troubles 😅

Do you think we should take into account the fact that more and more retail investors are joining the market ( dumb money ) compared to 10 years ago ? And that this will cause the PE to go up the next decade ? And that the market will be a lot more volatile ?

As the p/e shows, things will go up up up ... until they don't, but maybe this time it'll be different, eeh? Happily standing by with a cash pile to get in when they get back to sensible levels! And in meantime there's value stuff to consider as well.

The worst investments I have ever made were in high PE ratio companies, luckily, I have managed to get out from one by now, without loss, and I'm working on the other 2 ones. These are the situations when you learn the most, before this, I didn't know what opportunity cost meant.

well researched.

100% Thanks for another great video!

Hi Dr Carlin, Two tickers for you, AMDOCS (DOX) - IT Consulting firm. DOX is trading at P/E 12 only seen briefly during COVID. Alamo Group (ALG) - Agricultural and Farm Machinery. ALG at 15 P/E, seen in several ocasions during the years but the company has been given a premium due to its consistency and low debt. Obviously any drawback is somewhat justified. Would love for you to evaluate either/or. Thanks for sharing your knowledge with us. Best!

The Magnificent Seven vs the Magnificent Sven.

If I placed a bet now, it would be on: once the cycle reverts, people will look for highly undervalued Chinese stocks to invest (and others as well). Not a financial advisor, just a thought.

The valuation and financial metrics don't matter until they matter a whole lot and you lose a ton. Some never learn that lesson, others learn it the hard way.

5:00 That -61% hurts just to look at it! Ouch! 😬 I'm having 2008 flashbacks! How does one even survive a period like that? By being all cash and bonds?

"Earnings" is often just an accounting trick and companies often avoid showing "earnings" for as long as possible for various reasons (tax)

Great work...

P/E Ratio is important but each sector has a different standard for what a “ normal “ PE ratio is. Tech has a higher average than banks or utilities. As a dividend growth investor, I think payout ratio is more important.

I believe the main message was given during the first two minutes... Only Microsoft is still in the top ten. A very high PE ratio only pays back if the company keeps growing and its profits keep growing. However, we're mostly talking about companies that invest in new technology like AI. I am convinced AI will change the world, but I am also convinced today's top ten won't be the same ten years from now. Think IBM, Yahoo or Nokia. In my opinion buying Nvidia today is okay if you want to "ride the wave" and are smart enough to jump off in time. As a long time investment they're just too expensive at the moment.

Is there any evidence that stocks with low P/E ratios do better than stocks with high P/E ratios during a market downturn/multiple contraction cycle? It seems that you are taking this as fact, but I’m not sure it’s true. If the market is tanking I would rather own high quality stocks like MSFT than garbage like VZ.

Hello Sven I am new to your channel, and appreciate the very rational lessons! How can I request a stock analysis from you? I am curious how you would rate Palantir. Thank you!

Is there a correlation between PE to interest rates? I guess it should. When interest rates are high more money goes into fixed income

Hi, I just found out about this channel and the frist video I saw was the Excel Template of valuation. I didnt understand the Terminal multiple can someone explainm how I calculate it?

- never before seen levels of cheap money (low interest rates, money printing, QE, rampant deficit spending) - never before seen levels of dumb money / democratization of stock trading (every regular Joe can invest or speculate via trading apps nowadays, something that was much more difficult or nearly impossible just a decade ago) - T.I.N.A. (sure, there's real estate, bonds, etc. But why bother, when "stonks only go up"? (kinda goes along with the previous point)) seems like a new market paradigm that could invalidate old wisdoms?

What about the Buffet Ratio currently at 2x SD? When it revert to the mean or even to 1x SD, it would be a calamity.

A stock with a low PE can still be overvalued compared to their fundamentals. A low PE alone doesn't say much. Also a reminder that value stocks the stocks Sven invests fell 90% between 1929 and 1933

the only time it doesn't is short-term at the top of a bubble

Is impossible to predict but I am put my money in company with low debt, low p/L (trying to keep 10 years to less), and pays dividends because if they fall I would lose less. Also, is a money that unless some really bad shit 💩 happen I am not intend to take..

Own a low cost total market index fund. Add to the position consistently, whether the market's up or down. Shift at least 70% into bonds as you get closer to retirement. It's not hard.

Great content! Thank you. A question I have is when the cycle turns and P/E contracts is there evidence that higher PE stocks contract proportionally more than lower PE stocks?

The question is if its overvalued what we invest in instead and will give good returns?

people are high on free money, ie: Quantitative Easing...! if I'm not mistaken, QE was introduced by FED (at large scale) after 2008's GFC - so here we are today: people addicted to QE and low rates! even if we have the highest rates in the last decades, even if is possible QE not to come so soon as many think... it is a graph showing QE and SP500 moving in the same directions, so in many ways, QE = stock market growth! (as well as AAPL's growth is approx the same with share buybacks... what do you think about QE for the future and how it impacts the markets (stock valuations, too!)?

🗽 Shiller PE 36... that is really CRAZY A contraction will follow. The question is only WHEN? So, be careful what PE you buy or hold! ☝ A high PE-stock needs a lot of continuous growth. .

If you pay 100 PE today, what do you think your shares will be worth in 10 years? It means you're paying the price today that the earnings will be in 10 years 😂

The basic meaning of your video is true but there are a lot of fallacies as well. As Aswath D. says, P/E only speaks about pricing, intrinsic value speaks of the value. Munger/Buffet says they don't entirely use P/E as they look at underlying cashflows of the business. A 20x P/E can be a buy if the growth rates are high and sustainable, assuming there isn't material risk (management doing stupid things just to grow). First time I bought META was 20x then slowly increased my position as the valuation sunk to 10x. Looking at P/E and comparing it to the mean is lazy investing. You can actually value the S&P 500 by projecting its cashflows, estimating how much is returned to shareholders, and discounting it back to the present. Aswath uses risk-free rate + equity risk premium as discount rate. I use long-term opportunity cost which ends up roughly the same.

Will you ever sell even undervalued securities due to macro concerns and hold gilts / treasuries waiting for the recession?

But cycles work in 10 years.. are you saying not to be in the market for 10 years?

but... this time it's different :)

Consider earnings growth. PE ratios are current values, not forward values.

What if you do the same but with PEG instead of PE?

For what sector?

0:38 these comments shown in the video are disastrous

Nvidia has hit the wall in the last few days. 500 bn wipeout.

i didn't kow a pe ratio was capable of such malice!

This guys predictions have been wrong for years, stuck in the 80s

this is the real estate cycle not stock market cycle, not gold or bitcoin

Nvidia has a GIANT dividend

Buffet is sitting on cash cos he is too old to understand AI revolution. We are on AI wave that will last at least 10 years 😊