Investing

Long-term, valuation is all that matters

I recently found some charts on this tweet thread worth checking against some of my earlier posts on investing with a value tilt. These are similar to my earlier chart about forward 10 year investment returns versus on CAPE ratio, and can be summarized in the title of the first chart “Long term, valuation is all that matters”.

Chart #1:Long term, valuation is all that matters

Chart #2:JP Morgan Forward P/Es versus long term stock chart

JP Morgan Forward P/Es versus long term stock chart

Chart #3:Better correlation between 10 year returns and valuations than 1 year

Better correlation between 10 year returns and valuations than 1 year

How did valuation “fail” so badly as a metric in the 2010s?

With the clearest logic and historical evidence showing the importance of not paying too much for stocks, many smart investors are asking why expensive stocks seemed to do so much better over the past decade than cheap stocks. I published a look back on how valuation as a factor performed versus four other factors (size, quality, momentum, and low volatility) over the past decade in this article: https://seekingalpha.com/article/4315332-mtum-momentum-outperformed-over-80-of-msci-benchmarks-last-decade

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