silenceofmind.com
Believing The Impossible
“Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.”
“I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
~ Lewis Carroll, Through The Looking Glass
To borrow from Lewis Carroll: To have confidence in today’s central bank-created bubble markets, we have to believe in six impossible things.
Thing 1: Fundamentals Don’t Matter.
In our brave new world of money printing to infinity, we’re supposed to buy into a “new paradigm” story. You know, that It’s different this time.
Spoiler alert: It never is.
Companies either make money or they don’t. They’re either good investments or they aren’t. They’ll either return risk-adjusted cash to you over time, or they won’t.
Here’s a simple exercise. Using a publicly available stock screener at Finviz.com, a favorite site of mine, I set two filter parameters to obtain a list of companies that have::
- A market cap of over $2B
- A P/E ratio in excess of 50x
These are the biggest companies that, in theory at least, require investors to wait 50 years (or more) to be paid back in profits for each dollar invested.
236 companies fit this description right now. 236!
Here’s a screenshot of page 11 of the results. Every company listed here has a P/E multiple of over 190(!).
(Source – here’s the exact screen I used, so you can troll the results for yourself)
Again, these sky-high ratios mean that investors are willing to wait more than 190 years for these companies to earn back their principal at current stock earnings prices.
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