Well, we did it. After 11 months of worry and pain, the S&P 500 is once again over 2100. Not only that, but after an eleven-month pause, the market has had plenty of time to catch up with itself, which is another way of saying that there has been plenty of time for market earnings to catch up with market prices.
The problem is, they haven’t. In fact, quite the opposite is true. Corporate earnings are far lower today than they were in the summer of 2015, which means that from a value standpoint, stocks are considerably more expensive today than they were a year ago. There’s nothing so odd about this, historically, as bull markets almost always end in two phases: first, there is denial, in which earnings fall while stocks continue to rise, and then, often twelve, to twenty-four months later, there is panic, in which stocks fall sharply and quickly in order to re-align with earnings. During a panic, stocks often overshoot earnings on the opposite side, falling ten, twenty, or thirty percent below what would be reasonable, but that makes little difference during the denial.
So why buy stocks now? The answer is the same as ever: because there are companies that will be worth four to ten times what they are worth today in ten to twelve years, and so long as one doesn’t plan to sell during the intervening time, it makes no difference what the market does in that time. Here then, are a few companies you can buy today for the long-term. Four are the sort of winners that tend to remain winners; the fifth is the sort of loser that tends not to remain a loser.
As always, remember to consider these ideas to be just that, ideas, and do your own research before investing.