The overall market mood is “boom.” That’s the baseline. People are paying about 21.2X earnings for about 27% current growth. Growth higher than P/E is a classic “screaming buy” signal. If this growth rate continues into next year, you could even confidently buy the SPY and enjoy that random walk.
But the problem is that the market as a whole is more likely to slow down as we pivot from 2026 to 2027. Maybe the SPY will coast on 15% growth next year. In that scenario, paying 21.2X for the index is not smart. And if there’s any glitch in the projections, you might find yourself with a bad case of buyer’s remorse.
So every real investor has an existential choice: focus on higher growth rates at the best available price OR focus on price even if the growth isn’t there. Obviously companies with mediocre growth profiles can look cheap IF you have high conviction that they have the next big thing or are otherwise turning around. That’s the sweet spot: don’t find the stocks that are priced for instant utopia but find the stocks that are doing great things behind the scenes.
These stocks might look boring to your friends. That’s important too. If you’re here for the thrill, consider a casino. Sometimes investing means sitting with companies that look boring because you have faith that they’ll shock and delight the world one of these days.
People have been very loudly fretting about a BUBBLE for years if not a whole decade. This is the biggest mistake any true investor can make because it means you’ll be underweight stocks when they’re worth buying and then when you finally throw in the bear towel and start buying stocks again it’s too late to score a decent entry.
But is this a “bubble?” After all, the market is running at a forward multiple of 21.2X next year’s forecasts. That could look like the kind of environment that could theoretically collapse any minute, right?
However, the average P/E on the SPY in the last 5 years (basically the post-COVID era) is 19.9. For people who were around before the computer era, that’s a pretty scary number because the old rules made people queasy above about 15-16X. If these people want to jump, that’s their choice. They need to confront two real facts first:
2. The market has supported that 19.9 average multiple for FIVE YEARS. That’s not a fragile bubble that could implode any moment because don’t you think something would’ve popped it in those five years? Like it or not, anything that goes on for this period of time looks a lot like a new normal.
And if you noped out five years ago because the market looked top heavy then, you cheated yourself out of an 80% end-to-end gain just on SPY. Nothing fancy, just “the random walk.” Everyone else is cheering. You MISSED OUT of a big slice of good times.
Don’t cheat yourself out of the good times. We can do that for the 10-year period too. For the last TEN YEARS every day you could have flipped a coin: heads, you’d need to pay more than 19X to buy the market as a whole, tails, you’d get in for less. Was 19X scary? Turns out it was NORMAL.
The question as always is which stocks you’re buying and what you skip.
Investors also know that it’s about harnessing CHANGE on your behalf. You want to change your account balance for the better and you want it to happen fast so you can see it in real time. You want impact. Otherwise just buy bonds, clip coupons and shut up.
But as companies grow, they become prisoners of their own success. Mega Tech is still growing fast but what about the other 490 stocks in the S&P 500? They’ve largely conquered their addressable markets and everything after that is incremental expansion and efficiency. Great if you want to settle for that.
MCD just can’t sell twice as many burgers in the foreseeable future. KO can’t wave a wand and get people to drink twice as much soda five years from now. But GOOG and AMZN and AAPL and MSFT and NVDA are riding that kind of growth curve. You need to own them. Most index funds are overweight these names anyway.
And then if you want to think beyond five years out, by definition you’re thinking longer term. Companies that were where AAPL and AMZN and GOOG were 20 years ago. Companies that might need another 20 years to show us where they top out.
Small caps. Crazy technologies like the photonics stocks you guys love. Baby biotech. New consumer brands. New ideas. New industries.
Most companies will either hit a growth wall or vanish entirely (bad idea, bad execution, took a buyout) in 20 years. That’s why you need to diversify. Spread your disruption cash across 10-20-30 companies and even if 70% of them go to zero, the others will make up for it. And then do not touch the portfolio unless it’s clear that something has hit a wall (growth flatlines) or you want to make room for something better. Seriously. Let it cook. Venture capital funds lock up cash for a full decade.