In my opinion, there are two primary factors that determine long-term returns. The rate of change of earnings growth and the price or valuation you pay to buy those earnings.
This week we will focus on several consequences of valuation. How overvaluation reduces returns and how undervaluation can enhance returns.
Today’s video looks at the dangerous consequences of overvaluation even when the company is strong.
Best when viewed in full youtube screen.
Disclosure: Author Manages Portfolios Long ORCL, SCHW
Notice how valuation had more impact than the general stock market, yet it is often overlooked. Of course day traders only look at momentum. Investors are concerned with intrinsic value.