Have you ever heard that before? How about "There's nothing new under the sun" or "The check's in the mail". Here's another one "Buy in May and go away". My point here is that cliche's have no place in investing. Every period in the investing timeline is unique. The "dotcom" era ended in 2000 with a severe correction in the new technology companies, most of whom had no earnings and little revenue. They were cash rich from selling stock to investors who bought the IPO (initial public offering). These companies were often analyzed by such measures as their "burn rate" which measured when they would run out of money. Another measure of a dotcom company was "eyeballs". This was a measure of how many people simply looked at the web site of the company. The theory was that eventually, those visits would produce revenue for the company, but it usually never happened. Just before all this nonsense came to a screeching halt in 2000, people were saying "It's different this time". Fact is that eventually investors came to their senses and stopped feeding money to these scammers. There is no substitute for a thorough analysis of an investment, which includes an examination of the balance sheet, income statement, and ratio analysis, including price to earnings, price to sales, price earnings to growth, and an understanding of the business you are about to fund.
As I write this post, the average P/E of a stock in the S&P 500 stock average stands at about 20X earnings, historically, 15X is the norm. This means that stocks are expensive on a relative basis. Why is this? Well, interest rates are at a historically low level. That means that CD's, bonds, and other fixed income investments have really low yields. Investors are finding the best returns in the stock market. Many blue chip stocks have a dividend yield of over 3%. This beats a 5 year CD that yields 2% at best. The stock also has capital gain potential and is very liquid, meaning it can be sold at any time without incurring a penalty. Is it different this time? Is is safe to pay-up for a company to get a reasonable return? The answer is maybe. There are a few game changers in the universe of stocks such as Amazon, Facebook, Alibaba, Netflix, and Google (now called Alphabet). I just listed what is commonly called FANG stocks, they have rewarded investors for having the foresight of recognizing game changers. I would also include Tesla in this group. Do I currently have any of these stocks? No. My bad. I just own stocks that produce gas for your car, produce blockbuster drugs for disease, manufacture vehicles, write security software code, and manage the financial system of our country. Is it different this time? Not for me.
