The huge bull market we’ve enjoyed over the past year (S&P 500 up 28%, Nasdaq 100 up almost 50%), has largely been a story of multiple expansion… we’re not at the peak PE ratios we saw in 2021, when the S&P 500 traded at 23X forward earnings, but we’re still at about 20X forward earnings, up from 16 or so in late 2022 and early 2023 (and the tech sector is generally trading at a forward PE of 25-30, heavily influenced by NVIDIA (NVDA) and Microsoft (MSFT), which both trade at ~35X forward earnings… Apple (AAPL) did so for a while as well, but has come down to about 25X earnings this year as investors begin to absorb the fact that they’re not growing, and are more China-dependent than any other mega-cap tech company).
That has led to most of the companies that I’m comfortable with holding as a large position drifting above the range where I’d want to buy them right now. My top 20 holdings are almost all well above my “preferred buy” level, with the notable exception being Alphabet, as sentiment has dropped for that one again after their publicly embarrassing AI gaffes (I am not worried about their AI positioning right now, for the record), and there are only a few that are still lingering below my “max buy” prices.
I don’t mind letting cash build up a bit, particularly when that cash is earning a 4% yield in money market funds, but I’m also still adding cash to my portfolio every month, and I’d always rather be building positions in companies that can do better than 4% per year over the next decade, particularly the companies that I think can maintain their market share and compound shareholder value pretty steadily.
So although I’m holding out hope that we might see another 10-20% move down in share prices of some companies, I added a couple new positions today, and also made a smaller bet on a new ...