Making Money

The Last Time This Happened, Nothing Made Money for 17 Years

59 min

The podcast explores long-term investing strategies, emphasizing the risks associated with highly valued markets, particularly the current US equity market and its dominant tech stocks. Drawing on 200 years of global data, the guest argues that investing in cheaper valuations generally leads to better long-term returns, contrasting market-cap weighted indices with equal-weighted alternatives. Historical precedents show that even revolutionary technologies can lead to prolonged periods of zero investor returns if bought at peak valuations.

Summarized by Podsumo

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✨ Key Takeaways

1

High US Market Valuation

The US market, especially the "MAG7" tech stocks, is significantly overvalued, leading to global market-cap weighted indices being heavily concentrated (65% US, 25% MAG7).
2

Long-Term Valuation Principle

Historical data from 56 countries over 200 years consistently shows that portfolios with *lower valuations* (e.g., lower P/E ratios, higher dividend yields) tend to *outperform* expensive markets over the long run.
3

Historical Precedent of Stagnation

After the dot-com bubble in 2000, the S&P 500 delivered *zero real returns for 17 years* (until 2017 inflation-adjusted), despite the underlying technology being revolutionary.
4

Equal-Weighted vs. Market-Cap Weighted

Equal-weighted indices, by rebalancing into underperforming (often cheaper) companies, have historically shown better returns than market-cap weighted indices, especially during periods of high market concentration.
5

AI and Productivity

While AI is a potentially revolutionary technology, history suggests that great technologies don't automatically guarantee investor profits if valuations are too high, as seen with past booms in canals, railways, airlines, and telecoms.

💬 Notable Quotes

"If you just looked at the data, if you took the emotion out of it, that's kind of where we set off."
"Just by having a fabulous technology that's going to revolutionize the world, doesn't automatically mean investors are going to make money from it."
"If you inflation adjusted your returns, you had 17 years in the US market where you made the zero."