The Nifty Fifty in aggregate, purchased at their heyday multiple heights and held through to today have beaten the S&P.
Yes, in aggregate this is true. Not by a large enough margin that many would consider it a winning strategy to emulate, especially given the long periods of underperformance. And very probably "cherry picking" from them and holding would not have resulted in beating the overall market. Take a peek at the tech stocks of that group, some of them mentioned in TFM even, and see how those fared. That way at least there would be some reasonable analogy, not that analogy is a good guide.
If we are to look at historical multiples - and bear in mind, I'm not a fan of "multiples" and I'm not staking any ground on any valuations here - it should be to think about our expectations and how self-consistent we are. i.e., just look only at CSCO, INTC, MSFT, and ORCL. Answer two questions about each:
1) will the business do better, in terms of growth and profitability, in the next decade than it did in the past decade?
2) is there greater certainty that the business will be successful over the next decade than it was over the past decade?
Having answered those, we are in a position to rationally discuss the set of multiples currently applied to these business, compare them to their past sets of those same multiples, and think about what is implied for future returns and if we are being self-consistent in our thinking.
- Pirah |
