Techplayer,
growth stocks are not immune to the long term stock market underperformance that follows a secular stock market peak. On the contrary, growth stocks are the ones that underperform most!
At secular stock market peaks (such as 1901, 1929, 1966, and, IMO, 2000) investor exuberance pushes growth stock valuations much higher relative to other stocks, since, in the investors' minds, the growth stocks du jour are destined to conquer the world. During the years following a peak, valuation differences between growth stocks and other stocks diminish considerably. For example, throughout the 1970's and 1980's a good rule of thumb for valuing stocks was that the growth rate of a stock be equal to its P/E ratio. Today, leading tech stocks are sporting P/Es that are two or three times their growth rates -- even after the recent fall in the NASDAQ. It seems to me that they have very far to fall to return to normal valuations relative to other stocks, and even further, if they become relatively undervalued, as often happens in bear markets. |
