With normalizing rates, companies will need to earn their higher valuations. Find lower-multiple companies with sustainable and growing margins.

Transcript

Danton Goei:
We know that the period after the financial crisis from 2009 until 2022 was a great period. So market returns, overall an average over about 13% a year over that period. The question is, how was that generated and is that repeatable? So we looked at, what are the components of that? As Chris mentioned, margin expansion is one of them and you can see that on this chart here, is that it did contribute.

That's something that's very important. We look at companies, we want to make sure that the companies that we are invested in have very durable margins that are sustainable or even able to grow over time. We know that a lot of companies actually are at historically high margins. That's one kind of worry that we think about going into the future, but the other really big contributor there that we think is likely unsustainable is PE expansion. You see there that actually about almost half of the price return over this period was driven through multiple expansion. We know that that, if you think about the next decade, is unlikely to happen again, especially from the multiples that we're starting today. That is something to think about when you're start thinking about where the index is today and what is the sustainable levers of growth going forward. Those drivers helped us last decade, unlikely to be big drivers going forward.

More Videos

Recognize that Market Declines are Inevitable

Recognize that Market Declines are Inevitable

10% market corrections happen once a year on average. Don’t allow these inevitable pullbacks to sway you from your investment plan.
Watch Now
Equities Role During Periods of Inflation

Equities Role During Periods of Inflation

How inflation quietly eats away at the purchasing power of consumers and how Equities – while volatile in the short term – can help investors build long-term wealth faster than inflation can degrade it
Watch Now
Recession Potential and Impact on Portfolio Positioning

Recession Potential and Impact on Portfolio Positioning

Predicting is futile. Buy businesses that have proven resilient through the inevitable storms. Investors are now being reminded of the critical importance of business durability.
Watch Now
Investor Education
A Market Correction is an Opportunity.
Read More