Valuations

Matter
Michael Lebowitz, CFA April 1,
2017

Risk is not a number. Risk is simply overpaying for an asset.

5 Year Annualized Growth Rates: GDP (nominal) vs Corpor
20%

15%

10%

5%

0%

-5%

Corporate Profits GDP

 GDP vs. Corporate
20,000 Profits 2000

18,000 1800

16,000 1600 Corporate Profits ($billions)

14,000 1400

GDP ($billions)
12,000 1200

10,000 1000

8,000 800

6,000 600

4,000 400

2,000 200

0 0

GDP Corporate Profits

Real GDP and Trend Line : 1950 -
Current
 Forecasted Population of the World Babies vs.
Retirees

Graph Courtesy of the U.S. Department of State

The Debt Burden
Grows
Total Debt Outstanding, GDP and the Federal
Funds Rate
Productivity Growth is Slowing
Productivity
Slowing Around
the World
Cyclically Adjusted Price to Earnings Ratio
(CAPE)
cape
Advisor perspectives
CAPE Divided by Prior 10-Year GDP
1999 vs. Today
Distribution of CAPE since 1885
Annualized S&P 500 Return Expectations
Hussman 10 Year S&P 500
Return Outlook
Charles Schwab Graph of Forward P/E Since
1995

Prior to the late 1990s bubble, the median forward P/E for the S&P
500 is less than 11. (Courtesy Hussman Funds and Cliff Asness)
 What an investor to do?
Seek Value

Alternative Investments

Protection

Cash

Think For Yourself

Percentage Gain Required to Offset for
Percentage Loss
350%

300.00%
300%

250%

200%

150%

100.00%
100%

50% 33.33%
11.11%
0% -10.00%
-25.00%

-50.00%
-50%

-75.00%
-100%

Loss Gain
Long Stretches of Poor Returns
Reagan Era vs Today
 Risk is not a number.
Risk is simply overpaying for an
asset.