Chart of the week
From here to there
What does this chart show?
At the peak of the tech bubble in March 2000, the NASDAQ-100’s price-to-earnings ratio was 200. From then until present day, the total return of the NASDAQ-100 has been 346% - that’s ~7% per year or ~4.6x your money if you invested at the peak.
Why does it matter?
Many investors bemoan the extended valuations they observe for the widely tracked indexes today, but practically speaking, most investors are dollar cost averaging into markets over time.
This extreme example highlights that if you have a truly long-duration (20+ years) for your capital, then earnings (in this case of the index) will be the fundamental driver of your return. Over this period, the earnings growth rate of the NASDAQ-100 has been ~9.5% per year1, so despite the brutal compression of the earnings multiple since March 2000, returns have still been favorable.
The Bottom Line
Beware of the external temptations to deviate from the plan you have for your long-duration investments. Investment returns will converge towards earnings2 if you can make it to see the ‘long-run’ - diversification helps smooth the ride.
Chart - This chart was created with Claude
To quote that old saying. Life is a marathon not a sprint. A good number of people can run 20 miles but it's those last six that are the killers.