The “this time is different” calls are nothing new. It happened in the late ’20s and again in the late ’90s. Another such time was around 1960 and Ben Graham offered a brilliant take on the viewpoint.
At the time, most people thought the business world was “radically different and more favorable than that of the past.” Stock valuations were higher and many believed higher multiples were warranted going forward.
During a talk at UCLA, Graham addressed whether “this time is different” or if it was just a typical bull market:
All my experience goes to show that most investment advisers take their opinions and measures of stock values from stock prices. In the stock market, value standards do not determine prices; prices determine value standards.
Let me return to the question of whether new economic conditions justify higher multipliers of earnings and dividends than in the past. Let us assume, as is likely, that the answer is yes. Would that fact assure the investor against a costly and discouraging bear market experience? It seems to me that this is most improbable. The central level of values will be raised, but the fluctuations around these levels may well be just as wide as in the past; in fact one might expect even wider fluctuations. For since no one has any clear idea of just how the new central values are to be determined, it will be done by a process of trial and error in which speculative excesses on the upside and undue pessimism on the downside may play an even greater part than in most market cycles of former years.
Graham goes on to state a favorite line: “The more it changes the more it’s the same thing.”
Business, the economy, and the market are constantly changing and will continue to do so going forward. And yet, bull markets are followed by bear markets…even when “this time is different”.
Stock Market Warning: Danger Ahead! – Ben Graham
- To Become a Better Investor, Think Like Darwin – Nautilus
- The Map Versus the Terrain – Irrelevant Investor
- Hot Stocks can Make You Rich. But They Probably Won’t – NY Times
- When Time Catches Up – S. Godin
- Platonically Irrational – Aeon
- The Advantage of Being a Little Underemployed – M. Housel
- Michael Mauboussin: Invest Like the Best Podcast – Investor’s Field Guide
- The Michael Milken Project – Institutional Investor
- Why Amazon is Eating the World – Tech Crunch
- The Most Important Scientist You’ve Never Heard Of – Mental Floss