Investors who are allergic to high valuations are missing out⦠[The Jolt with Stephen McBride] How I learned to buy expensive stocks The S&P 500 has jumped 5% since last Mondayâs vicious selloff, but weâre not out of the woods yet. Data from Ned Davis Research shows stocks typically retest the lows after big spikes in volatility before making new highs. Weâre also nearing September, the worst month for stocks over the past decade. The S&P 500 has fallen in 7/10 of the last Septembers. And remember, [stocks are usually weak ahead of US presential elections](. Use any potential weakness to scale into great businesses in long-term megatrends. Quality disruptors will power ahead, no matter what markets do in the short term. - How I learned to stop worrying and buy expensive stocks. The 10-year average price-to-earnings (P/E) ratio (called the CAPE ratio) is a commonly used way to measure how expensive or cheap US stocks are from a long-term perspective. Guess the number of months stocks have been âcheapâ based on this metric since 2010, if you consider âcheapâ to be below the long-term average⦠Zero. Investors who were allergic to high valuations have missed the chance to quadruple their money in the S&P 500 since 2010: Itâs not that buying expensive stocks is a smart strategy (itâs not). Itâs that comparing the valuations of stocks today to those of 40 years ago is a big mistake. Stocks deserve to be more expensive today because the businesses they represent are so much better. Todayâs crop of S&P 500 companies are faster-growing⦠more profitable⦠and more predictable than ever. Why wouldnât you pay a premium for Microsoft (MSFT)âwhich grows its earnings by 10% like clockworkâcompared to a steel miner whose sales bounce around like a Yo-Yo? America is a business, and one that just keeps improving. Look at this chart. It shows what percent of sales S&P 500 companies turn into pure profit. Itâs nearly tripled since 1995! Source: Standard & Poorâs Invest in great businesses at reasonable prices, and the rest will take care of itself. Thatâs what we do in Disruption Investor. [Upgrade here.]( - The writing was on the wall for Nvidia (NVDA). Nvidia eclipsed Microsoft to become the worldâs most valuable company on June 18. Thatâs also the day Nvidiaâs stock peaked, and itâs fallen 12% since. Many other artificial intelligence (AI) winners have slipped, too. The corporate media mill is in overdrive writing about the AI bubble bursting. Have a look: Source: Google What bubble are they talking about? This is just lazy reporting. Yes, Nvidiaâs stock has surged 600%+ in the past two years. Its profits have also jumped 600% in the past two years. Its stock price basically tracked earnings tick for tick! Dozens of AI winners have soared 50%+ since the start of 2024. The current lull in AI stocks is a healthy correction within a multi-year uptrend. Two signals thatâll warn of an AI bubble: #1: AI stocks trading at insanely high valuations. Not there yet. #2: Big AI IPOs. Remember, [when the leading company in a hot sector goes public, it often marks âthe top.â]( Weâre likely a year away from OpenAI or Anthropic IPOing. [Disruption Investor](members took profits on Nvidia earlier this year. Weâre reinvesting those gains into lesser-known winners from the AI infrastructure buildout. This selloff is a great buying opportunity for long-term investors. - Do you know who manufacturers Nvidiaâs AI chips? Taiwan Semiconductor (TSM), or âTSMCâ for short. Nvidia basically sends TSMC an email once a year with a new chip design. Then, engineers in Taiwan use $300 million machines to print these designs onto large silicon wafers. Iâm oversimplifying, but only a little. Guess who makes Googleâs (GOOG) chips? TSMC. How about Apple (AAPL)⦠Microsoft⦠Amazon (AMZN)⦠and Facebookâs (META) processors? Yep, also Taiwan Semiconductor. [ShareÂ]( AI runs on cutting-edge chips, which really means AI runs on TSMC. Goldman Sachs recently sounded the alarm about how little money companies are earning from AI. It shouldâve read TSMCâs earnings report. Little-known fact: Unlike in the US, the Taiwan Stock Exchange requires companies to report monthly earnings. Last month, TSMCâs sales surged 44% to a new record high, driven by AI chip demand. Remember, [new technologies follow the predictable I.P.A. pattern](. Infrastructure comes first, followed by platforms, then apps. [Disruption Investor]( members are up 80% on TSMC since we bought it. Continue to invest in companies drinking from the firehose of AI infrastructure spending. - Todayâs dose of optimism⦠Iâve been critical of US colleges for radicalizing kids and burying them in mountains of debt. But one thing theyâre great at is making Olympians. Athletes from four top California schools won a combined 89 Olympic medals in Paris. If Stanford were a country, it would have placed eighth in the medal rankings! Ahead of Canada, Germany, and Spain. Hereâs the list of the most âwinningâ US schools. Did your school make the list? Source: CBK Report Stephen McBride
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