Experts from a world that no longer exists
&gt; “Don’t buy stocks when the P&#x2F;E ratio is over 20” was a good lesson to learn from the 1970s when interest rates were 7%, the Fed hadn’t yet learned what it’s capable of, and most businesses were cyclical manufacturing companies vs. asset-light digital services. Is it relevant today? At a broad, philosophical level, yes. In practical terms, probably not. In the same sense, buying stocks at all seemed like nothing but speculation in the 1920s because corporate disclosures were so opaque. By the 1970s that had changed, and you could begin to make rational, calculated long-term decisions that put the odds in your favor.<p>The funny thing is that <i>exactly</i> this kind of talk was all the rage leading up to both the 2000 and 2008 crashes. The boom makes it impossible to imagine what the bust will look like, and vice versa. Most people are utterly incapable of seeing 180 degrees through the business cycle. They simply can&#x27;t do it and rather extrapolate current conditions to infinity.<p>This is a big part of boom&#x2F;bust cycles. They are spaced out by just enough to entice a new group of greenhorns who ever more loudly beat the new paradigm drum. Then this new class learns that the business cycle is in fact immortal. But for many, it&#x27;s a short-lived lesson.<p>And that part about making &quot;rational, calculated long-term decisions&quot; is amusing. Because it&#x27;s during the boom that companies start to engage in accounting shenanigans. The book-cooking will all come out in the next bust, just like it always has. 100x + price-to-earnings multiples will cover a multitude of sins.<p>As Warren Buffet allegedly said, it&#x27;s only when the tide goes out that you find out who&#x27;s been swimming naked.