Is it really different this time?

Just as it was 20 years ago, the market is being driven a few names with high valuations, says Shehryar Khan.

Shehryar Khan, CFA 24 August, 2018 | 5:00PM

 

 

Shehryar Khan: While investing is about looking forward, as with anything else history helps us to understand what may happen in the future. We always view the idea that "things are different this time" with a great deal of skepticism. I was recently reading the annual letters written to investors by Bob Krembill and Arthur Labatt, two of the founders of Trimark which was later bought by Invesco. In their 1998 year-end letter, they warn investors that a few wildly popular stocks are driving the performance of market-cap-weighted indices, and how investors of the day should be careful when justifying those valuations with factors such as low interest rates and low inflation. They warned that the gap in valuations between the names that everyone owned at expensive multiples and other businesses was not sustainable, and the market would bring things back into balance. They were right, as multiple market corrections over the next decade helped bring valuations of companies back to their historical norms.

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Shehryar Khan, CFA

Shehryar Khan, CFA  Shehryar Khan, CFA, is a senior investment analyst for Morningstar’s Investment Management group.

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