For most of 2019 and early 2020, I didn’t have much to say about the stock market in general because most of the stocks worth buying and holding for a lifetime were trading between 20x earnings and 30x earnings, or even in some cases a valuation above that.
I am generally skeptical when most mega-cap companies trade at valuations north of 20-22x earnings, because with very few exceptions, it means that a stock is becoming overpriced. As someone who appreciates the underlying business that is owned by the common stock, I cannot help but grow uneasy when a stock price (already at 20x earnings or greater) grows father than its underlying earnings. Usually, a piper must be paid at a later date. Sometimes, the correction is slow and gradual, with earnings growing faster than the stock price for a period of years. Other times, some global or firm-specific event causes … Read the rest of this article!