I have seen this movie before. A new invention or two, and their future is wildly hyped. This time around it is AI and Space-X. Both going to change the life on Planet Earth and beyond- at least supposedly. Data centers and space travel are the hot things to invest in. Just follow the herd!
For reference, average historical price/earnings ratio run a little over 20. I sold some Cisco Systems the other day. It’s P/E was 40 and its dividend a paltry 1.4%. Wal-Mart stock has a 42 P/E ratio, and offers an .82% forward dividend. Is it a mature company, or doubling sales every year, to have this lofty valuation? Nvidia has a P/E of 32 and pays no dividend. SpaceX has neither a P/E nor a dividend, as it does not yet have any earnings. Will it ever have any earnings in our lifetime?
By any metric, the US stock market is overpriced.
In the meantime, I can earn 9.6% from the preferred share fund PFFA which employs leverage, or 6.9% from my high-yield BUFHX that does not employ leverage. Anyone think the high-flying stocks will return better than that in the future?
People were saying the same thing about Amazon in its early years as a public company. The reality is that those are capital intensive businesses that will spend a lot of money building out infrastructure.
As for stocks being overvalued…the market will let you know. Based on your comments, it seems you are looking more for income than growth anyway…
I have always targeted dividend paying stocks. Money not paid in dividends will be wasted by management somewhere. Paying dividends instills discipline in management. I have done well with this strategy.
That being said, at age 71 my main goal these days is not to lose principal. Is there a 9% per annum upside in the market? I strongly doubt it at this stage. Growth stocks can crash as easily as they can grow. I remember a poor pick called Global Crossing about 27 years ago. “Build it and they will come.”
Space X is one rocket crash away from a stock crash. That being said, I HOPE it prospers.
Sounds like you are trying to time the market. Since most of the NASDAQ does not pay dividends…I would say you are probably several thousand percent below total market returns.