@Warrigals,
My very worst fear is that the world of near-free money - which has driven a secular re-rating of quality stocks for the past several years - continues for another 5 years.
Or for 10 years, even.
For it will mean even greater distortions of perceptions of "value" as investors increasingly view this to be the "new normal".
As it is, I sense that people have forgotten that half-decent businesses with P/E and EV/EBITDA multiples above 15x and 8.0x, respectively, used to be classified as expensive.
Today, stocks trade merrily away at multiples well above 20x P/E and 10x EV/EBITDA and the market barely raises an eyebrow.
Ultimately, no good is going to come of this.
But my sense is that - as long as the world's monetary heads remain hell bent on maintaining the status quo of keeping capital markets awash with easy capital - the re-rating phenomenon will keep grinding higher over time.
It would not come as a surprise to me if in a few years time, P/E multiples above 25 and EV/EBITDA multiples above 15x will be the order of the day.
We are already seeing it in certain pockets of the market, such as ARB.
It is creating a real problem for value investors, because maintaining investment process discipline could mean sitting out of the market for many years, waiting for valuations to return to acceptable levels.
It's becoming a real dilemma.
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1 | 67 | 39.930 |
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1 | 65 | 39.910 |
Price($) | Vol. | No. |
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40.010 | 50 | 4 |
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