Valuation Does not Matter – Until it Does
November 19, 2024
9 min read
Valuation Does Not Matter — Until It Does
Valuation multiples have surged beyond post-Covid boom levels. Multiple expansion — not revenue, not earnings growth — is driving the indices today. Walmart as a stand-in for today's large caps shows what history does when the business fires on all cylinders but the valuation has run too far: a lost decade.
In 30 seconds — the core thesis
- Multiple expansion is the main driver — not fundamentals. After the Q3 2024 earnings season, the market's message is clear: it is not revenue or earnings growth that keeps driving the indices higher. It is investors' sheer willingness to pay a higher price for the same earnings. Even the post-Covid boom valuation levels have been exceeded.
- Walmart as a parallel to today's large-cap reality. Walmart is up 60% in 2024 — with the same revenue, the same margins, the same strategy. Valuation multiples are back at dotcom-mania levels. The price move is essentially pure multiple expansion. The pattern is not a one-off — it's a signature of the current phase.
- The dotcom lesson: a lost decade between 2000 and 2007. Walmart itself illustrates the historical pattern: quality protects during bear markets, but after excessive valuation comes underperformance. From the dotcom peak to 2007, Walmart underperformed the market by 100 percentage points — while the business fired on all cylinders year after year. The valuation has to be grown into.
The original analysis — the opening
The discipline to not just buy anything at any price is one of the most important qualities.
— Howard Marks, American investor, Co-Founder of Oaktree Capital (*1946), paraphrased
«Is everybody out there nuts?» This is a line from Gordon Gekko's famous university speech in «Wall Street 2 — Money Never Sleeps». In the speech, Gekko explains «steroid banking» to the students — the now-bankrupt business model spreading like a cancer and destroying the entire planet. Then he adds: The mother of all evil is speculation.
When Thierry observes and analyzes today's stock markets, it coincides strikingly well with another statement repeatedly quoted by Stanley Druckenmiller and other Wall Street veterans: the idea of a lost decade. And the ongoing multiple expansion of recent years plays the central role.
→ Read the full analysis on The Market by NZZ
Chart 1: S&P 500 Price to Peak Earnings Ratio, Quarterly 1988–2024
Source: Creative Planning, Charlie Bilello
01Multiple expansion instead of fundamentals
After the Q3 2024 earnings season, the market's message is unambiguous: it is not the most important factors — revenue and EPS growth — that keep driving the indices higher. It is the sheer expansion of valuation multiples. Investors are prepared to pay ever-higher prices for the same fundamental output.
The valuation level of the post-Covid boom — already extreme by late 2021 — has now been exceeded. Measured by multiple metrics, we are back in dotcom-mania territory.
Why this is dangerous
Multiple expansion without underlying earnings growth is borrowed performance. The investor pays today for what the company has to deliver many years from now. If the expectation tips — through rates, growth disappointment, or sentiment shift — the stock has to grow into its valuation. That is the lost decade in slow motion.
02Walmart 2024 — the 60% jump as a case study
A concrete illustration: Walmart, a stock arvy held in its funds at the time of the original article (November 2024). Walmart is the 14th largest company in the world. A defensive business model that has evolved from a growth story focused on «new stores» to a story focused on operational efficiency. Not a mega-growth story — but a capital compounder where shareholders can sleep well.
The surprise: Walmart is up 60% in 2024.
+60%
Walmart 2024
Defensive, large cap, 14th largest globally
+26%
S&P 500 2024
With «Magnificent 7» leverage
+17%
S&P 500 Equal Weight
Without tech heavyweights
A figure Thierry would have laughed at had it been predicted at the start of the year. The problem is not the performance — as a shareholder, he gratefully accepts it. The problem is the cause: most of this rise is pure multiple expansion. Revenue and earnings have not grown by 60%. Investors' willingness to pay a higher price for the same earnings output has grown by 60%.
Walmart's price-to-earnings and price-to-sales ratio (Chart 2 in the original, Source: Koyfin) is now at dotcom-mania levels. At $84 per share, the psychologically attractive $100 level seems within reach. But: the company itself cannot deliver equivalent revenue or earnings growth in such a short time. To reach $100, the multiple would have to expand even further.
Walmart as a stand-in
Walmart is not the problem. The company is a fortress — historically the No. 1 recession stock, having outperformed in 23 of the last 20 recessions (joking aside, the legend is almost true). The problem is the valuation. And Walmart's pattern — multiple expansion on unchanged fundamentals — is representative of most large caps today. This isn't about Walmart. It's about what history tells us about phases like this.
03The dotcom lesson — Walmart's lost decade
What happened to Walmart during the dotcom frenzy and after? The pattern is instructive:
Walmart 1998–2009 — a fortress's lost decade
1998–2000The rise
Multi-X
Strong business growth plus «risk on» tailwind. The share price rose many times over — accompanied by a multi-fold multiple expansion.
2000–2002Dotcom bust
+30%
Walmart outperformed the broad market by 30%. But: not through advances. By moving sideways while the S&P 500 collapsed. Walmart grew into its valuation.
2002–2007The silent underperformance
−100pp
After the bear market comes rotation into riskier names. Walmart becomes uninteresting, gets sold for «the next big thing». By 2007: 100 percentage points of underperformance vs. the market. Revenue and earnings keep growing — the stock does not.
2008–2009GFC irony
+60%
During the Global Financial Crisis, Walmart once again outperformed the market by 60%. The defensive story returns — but only after the valuation has been fully digested.
The math: Walmart experienced a lost decade between the dotcom peak and the GFC peak. Not because the business was weak — revenue and earnings grew year after year. But because investors had years earlier priced in excessive growth expectations, and the company had to work off that valuation.
The timeless lesson
A business can fire on all cylinders — revenue up, earnings up, market share up — and the stock can still experience a lost decade. Because the valuation has run too far ahead of the business. That is the core of the lesson. It is also why «valuation doesn't matter» is wrong long-term — until, suddenly, it decides everything.
04The Druckenmiller trap — even pros become victims
What makes the dotcom era especially instructive: even one of the most brilliant investors of all time, Stanley Druckenmiller, fell for the FOMO dynamic. At the start of the dotcom bubble, Druckenmiller had rationally avoided the tech rally — and watched as colleagues and younger analysts posted enormous gains. At the peak of the mania, early 2000, he capitulated and bought tech heavyweights. When the bubble burst soon after, those purchases became some of his most painful lessons.
He later described his emotions during that phase without sugarcoating — a macro trader with one of the best track records in history, who lost his discipline at the peak because everyone else was making money and he was not.
Why this story matters
If Druckenmiller became a FOMO victim — with decades of experience, hundreds of millions under management, and the track record he had — then this is not weakness. This is the structural danger of melt-up phases. The question is not whether you become emotional. The question is whether you have mechanical rules that protect you from your own emotions.
05Sell rules as an objective anchor
Markets are driven by sentiment and expectations. Particularly late in the bull cycle, excessive moves regularly end in a melt-up. For disciplined investors: do not fight these trends — markets can stay irrational longer than you can stay liquid. But don't blindly ride them either.
The solution: clearly defined sell rules that serve as an objective anchor. They help you not fall in love with a story. They make decisions before emotion takes over. They are the shield against the Druckenmiller trap.
The 12 arvy sell rules at a glance
Thierry's twelve rules distinguish between fundamental sell signals (margin erosion, moat decay, capital allocation errors) and mechanical sell signals (chart breakdowns, relative weakness, valuation extremes). The valuation rule is typically the third line of defense — it only kicks in when fundamental rules don't fire. But in melt-up phases like today's, it moves to first line.
The structural background of today's valuation extremes is covered by the Margin of Safety analysis — how razor-thin the reserve is in the S&P 500. Market concentration is explored in What Keeps Me Awake at Night. And why quality stocks at new highs can still be the right choice — the counterweight to this warning — is the subject of The Great Paradox.
06What to check now
1. Multiple check of your top positions. Where does today's P/E sit relative to the 5-, 10-, and 20-year averages? If a position trades above the 90th percentile of its historical valuation, that's not cause for panic — but it's a signal for heightened attention.
2. Separate multiple expansion from fundamentals. How much of your best position's performance last year came from revenue and earnings growth — and how much from pure multiple expansion? If earnings were flat and the stock rose 60%, the pattern is identical to the Walmart case.
3. Define sell rules — now. Before emotion arrives. Write them down. Ideally three categories: fundamental signals (the business breaks), mechanical signals (the chart breaks), valuation signals (multiple extremes). When one fires: sell, don't negotiate.
4. Check pension fund exposure. Your pension fund almost certainly holds passive index mandates. Today these are heavily concentrated in the most expensive parts of the market. That's the Druckenmiller trap in institutional format. Ask your pension fund specifically about the multiple exposure of the top 20 positions.
What disciplined investors do now
They develop a sense for valuation — not as a timing tool, but as a risk radar. They accept that holding discipline means missing individual melt-up legs (like arvy with Nvidia in late 2023). They define sell rules before emotion. They remember Walmart 2000–2007 — business firing on all cylinders, stock sideways for seven years. They know: valuation doesn't matter. Until, suddenly, it does.
07Frequently asked questions
Does this mean I should sell everything now?
No. The article is a valuation warning, not a market-timing recommendation. Markets can stay in melt-up phases for a long time. The recommended response: define sell rules, understand multiple expansion, calibrate position sizing. Not: panicked de-equitization.
How long exactly was Walmart's «lost decade»?
Roughly 2000 to 2007 — about seven years of sideways / underperformance in the stock, while revenue and earnings kept rising. The mathematical underperformance vs. the broad market: roughly 100 percentage points. That's real capital destruction for investors who bought Walmart at the dotcom peak.
How does «multiple expansion» differ from a normal valuation rise?
Normal: valuation rises because the company grows and that growth expectation gets priced in. Isolated multiple expansion: the company does not grow faster, but investors pay more for the same growth rate. The latter is structurally more unstable — a function of sentiment, not fundamentals.
Does the Walmart lesson apply to tech mega-caps?
Yes — amplified by passive index flows. Tech mega-caps carry the Walmart pattern in compounded form: high operational quality plus dotcom-level valuations. When rotation comes, it can hit them harder — because the passive flows hit the same names uniformly.
Read next — the thematic anchors of this analysis
Until, suddenly, it does
The math is relentless. What multiple expansion gives on the way up, it takes back on the way down. Walmart 2000–2007 is not an exception — it's the pattern. Every time a stock is bought on pure multiple expansion, without revenue and earnings keeping pace, a payback deficit accumulates. That deficit gets closed either by growth — or by time. Time in which the stock does nothing while the company keeps working. Time in which passive investors get disappointed. Time in which pundits say: «quality was always trash anyway».
And precisely in that time, when nobody wants to talk about quality anymore, the seed is planted for the next twenty years of compounding. After 2007, Walmart ran again. After 2009, it ran even better. But those who bought at the dotcom peak took seven years just to reach breakeven. Seven years of life, during which retail investors' coffee consumption turned into gray hair.
Gekko's question — is everybody out there nuts? — is the right question, not as an answer but as a compass. If the answer is «maybe», it's time for sell rules. Not panic. Discipline. A feel that valuation does not matter right now. A reminder that it will, suddenly, matter. Always.
Original written by Thierry Borgeat, Co-Founder of arvy, for The Market by NZZ. The extended arvy version was reviewed by Patrick Rissi, CFA and Florian Jauch, CFA. Walmart was an arvy portfolio holding at the time of the original article (November 2024). Historical performance figures (Walmart +60% YTD 2024, S&P 500 +26%, Equal Weight +17%) reference mid-November 2024. Sources in the original: Creative Planning, Charlie Bilello (S&P 500 multiple), Koyfin (Walmart valuation), TradingView (price chart). Current arvy portfolio positions in the Q1 2026 quarterly report. Last update: April 2026.
Disclaimer: This article is for general educational purposes and does not constitute personal investment advice. arvy is a FINMA-supervised asset manager with a CISA license (Art. 24). Imprint & Legal Notices.
