Josh here – in the mid 1960’s, investors decided that there was a group of fifty growth stocks whose outlook was so bright that it didn’t matter what price you paid for them, as long as you were buying. By the early 70’s, they were learning a critical lesson about starting valuation – McDonalds, Coke and Procter & Gamble did indeed have a very bright future, but that didn’t prevent them from being cut in half. Investors in these names would have to wait for a decade or more to get back to even, despite having been right about the growth outlook.
Today’s enthusiastic buyers are wandering into a similar trap in many of today’s hottest growth stocks.
My friend Vitaliy Katsenelson wants to remind everyone that price matters and starting valuations will have an impact on an investors real returns over time. His excellent new post, about “one-decision stocks” can be read here.
Vitaliy also talks about why the current stock market situation more closely resembles Bobby Fischer’s “random” chess than the centuries-old original game. We talk Warren Buffett, the problem with airline stocks, the growth vs value paradigm and a lot more.