Back to the good ol' days?
From the March lows, the S&P 500 has gained 68%, although it remains 25% below its all time high. It might seem reasonable and even stimulating to envision the S&P 500 returning to $1,565 where it sat in October 2007. However, some words of caution – keep three things in mind. First, operating margins were at an all time high, about 40 percent above average. Second, the price to earnings multiple on the overall market was above historic norms, which again, were being multiplied on inflated earnings. Finally, many of the losses that have taken place in the financial sector were permanent losses of capital. If you were to account for those losses, the S&P 500 high of $1,565 equates to a level of about $1,325 today! We still assert the fair value to be approximately between $900 and $1,000, compared to $1,115 where it stands today. We wouldn’t count on it returning to its all time high anytime soon.
Disclaimer: The specific securities identified and discussed should not be considered a recommendation to purchase or sell any particular security. Rather, this commentary is presented solely for the purpose of illustrating YCG’s investment approach. These commentaries contain our views and opinions at the time such commentaries were written and are subject to change thereafter. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. These commentaries may include “forward looking statements” which may or may not be accurate in the long-term. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable. Past performance is no guarantee of future results.