As we roll through earnings season it is striking to me how much the investment climate has changed over the past decade. While this comes as no surprise to anyone who has been investing for awhile, it is surprising how attitudes can change so dramatically. I believe one of the biggest mistakes we can make as investors is to become far too myopic. It’s easy to understand how we fall into this trap in the instant information society we live in today. Let’s face it, we are judged by very short-term results. So taking a step back and looking at the big picture always gives us a healthy sense of perspective.
Off the top of my head I picked four names that were all the rage ten years ago and highlighted the change in valuation:
10 years ago P / E PRICE / SALES PRICE / BOOK
EBAY 370 x 21.4 8.7
CSCO 148 x 24.7 16.9
AMGN 62 x 19.1 15.4
EMC 94 x 16.8 17.8
Currently
EBAY 19 x 3.4 2.2
CSCO 23 x 3.9 3.4
AMGN 12 x 3.9 2.5
EMC 32 x 2.6 2.3
There has been a great deal of revised expectations over the decade. Yes, I realize the current multiples of the stocks highlighted above are merely a reflection as to how overvalued they were ten years ago. I can hear many argue that simply because valuations have come down significantly doesn’t make then fairly value today. True – but my point is how the psychology has changed. One could certainly make a case that these names are still overvalued, but I would argue that these businesses are in many cases multiples larger today - yet trade at a fraction of their previous valuations. I would also argue that these are sustainable business models that will be growing long into the future. Amazingly, these names are generally treated with a sell first mentality. Does that make any sense?
Disclosure: none
