Businesses can fire on all cylinders, and yet a lost decade for their share price can loom as valuations stretch beyond reason. The lesson? History shows valuation does not matter – until, suddenly, it does.
«Is everybody out there nuts?»
This is a line from Gordon Gekko’s famous university speech in the movie «Wall Street 2 – Money Never Sleeps».
In the speech, he explains «steroid banking» to the students, the now bankrupt business model that is spreading like a cancer and destroying the entire planet. «The mother of all evil is speculation», Gekko says afterwards. The film and the first «Wall Street», Oliver Stone’s classic from 1987, have been on my quarterly list of movies to watch again and again ever since. I know the university speech by heart and frequently have it running through my head. The first sentence I mentioned in the introduction fits well with what follows.
When I observe and analyze today’s stock markets, it coincides quite well with another statement repeatedly quoted by Stanley Druckenmiller among other Wall Street veterans: The idea of a lost decade.
The ongoing multiple expansion (chart 1) plays a significant role in this.
Chart 1: S&P 500 Price to Peak Earnings Ratio, Quarterly 1988 – 2024
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