[first part redacted]…Tim, why does it matter whether some stocks are perpetually overvalued or undervalued? You talked before about home some stocks like Altria are always cheap, and others like Hershey are always expensive. But if that condition persists for years and years (decades?) then why does it matter? Doesn’t it all work out the same in the end? [rest of conversation redacted] –William
Hi William. That’s a wise question. You’re right to point out that, if a stock price does not change its valuation (that is to say, it always trades at 15x profits, or always trades at 30x profits), then it seemingly takes away your opportunity to benefit from “buying low” because buying low is just a non-nerdy way of saying “anticipating P/E expansion.”
But there are three things you need to take into account before reaching the conclusion that there is no difference between companies that are … Read the rest of this article!