Mark Twain told us that history does not repeat but it often rhymes. I want to offer you another data point on the folly of paying high prices for “innovative” stocks.
In 1999, there were 247 stocks trading on the New York Stock Exchange and the Nasdaq exchange with a price-to-sales ratio over 25. That is the sort of “we expect this company to take over the world” valuation. For comparison, the old-school benchmark was that a price-to-sales ratio under “2” signalled fair value and a P/S ratio under “1” was a strong sign of an undervalued stock.
What happened to an investor that bought each of those stocks in 1999 and held through to today? You would have earned 3.5% on your money through today. And if you did not include Nvidia in your holdings, which was the crown jewel performer, you would have lost 7.0% annualized on your … Read the rest of this article!
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