Markets are going down, up a little, sideways, … Is it surprising? Not really and it does not preclude obtaining a good performance.
These past months, I frequently mentioned that big companies are generally not cheap. Here is another interesting statistic:
Following a recession, price/earning ratios (P/E) are generally low because stock prices are depressed. It is not the case now. Big cap indices such as the S&P 500 have a P/E of approximately 22 (around 26 if you count the write-offs) … historically speaking, this is expensive. Since 1920, if we look at the median (the middle) of each time the P/E was expensive following a recession, the average return for the big caps was 4.4% per year for the following 10 years.
Conclusion: If one wishes to obtain a good performance, a disciplined approach is essential in building a portfolio. Stock selection takes on a lot of importance especially when investing in a large company.
