Predicting is DIFFICULT, Especially About the Future

While the humorous aphorism of this post’s title evokes our long-standing aversion to short-term prediction, we nonetheless hold strong, evidence-based beliefs about the future. Among those beliefs are a conviction that fundamental valuation ultimately matters in the stock market. Which is to say, how much you pay for a stock’s, or basket of stocks’ earnings will matter in the long run. When stocks are priced cheaply relative to their earnings, investors are pricing them for a high “expected” return, whether or not that return shows up in the short-, or even intermediate-term.

And while the US market has been on the rise since the worst of the pandemic-induced downturn, most of that rise is attributable to a small handful of mostly tech stocks, which are now sporting very high, and probably unsustainable valuations. In fact, the valuation gap between growth and value stocks is the largest it’s been in 20 years.

Which brings us to the real purpose of this post, which is to share an article from this weekend’s New York Times that makes the case for why value, small company, and non-US stocks are likely to take the lead going forward. We assume it’s nice to hear it from someone other than us from time-to-time.