Hello friends. I've created a simple index that measures the collective movements of major US brands which produce physical products and have near total monopolies on their markets.
The fun thing about these monopolies is that they have complete price control. This means they are not even slightly impacted by inflation . In fact, they can use it as a profitable excuse to increase prices. On top of this, each and every one of these brands is irremovably seared into the brain of every American much like the way we sear branding into cattle to identify who owns the cattle. The brands own us.
The forward valuation of these companies is grossly high with Apple at 28.4, Mcdonalds at 33.0, Nike at 30.6, and Coca Cola at 28.4. This places the average P/E ratio at 30.1, which is far too high when you really think about it in perspective, even after considering the power of brands and the significance of price control.
You can buy a real business online for more like a P/E ratio of 5. You can recoup an investment in solar panels in about 10 years. Chinese stocks trade at a P/E ratio of 10. There isn't much justifying a dramatic premium for these companies except that they are huge household names which nearly everyone consumes and invests in. I would say a fair P/E ratio for these is more like 15, which is almost 50% less than the current levels.
If the current market situation is such that you can make alternative investments which will pay back 3 times faster and with less risk, large investors will do that instead of wasting money betting on big brands for absurd valuations.
This prediction isn't even for a 50% drop though. It's a measly 25% drop that I'm expecting. It's very easy for valuations to "compress" to more fair levels during a recession and when the federal reserve continues to hike rates.
The fun thing about these monopolies is that they have complete price control. This means they are not even slightly impacted by inflation . In fact, they can use it as a profitable excuse to increase prices. On top of this, each and every one of these brands is irremovably seared into the brain of every American much like the way we sear branding into cattle to identify who owns the cattle. The brands own us.
The forward valuation of these companies is grossly high with Apple at 28.4, Mcdonalds at 33.0, Nike at 30.6, and Coca Cola at 28.4. This places the average P/E ratio at 30.1, which is far too high when you really think about it in perspective, even after considering the power of brands and the significance of price control.
You can buy a real business online for more like a P/E ratio of 5. You can recoup an investment in solar panels in about 10 years. Chinese stocks trade at a P/E ratio of 10. There isn't much justifying a dramatic premium for these companies except that they are huge household names which nearly everyone consumes and invests in. I would say a fair P/E ratio for these is more like 15, which is almost 50% less than the current levels.
If the current market situation is such that you can make alternative investments which will pay back 3 times faster and with less risk, large investors will do that instead of wasting money betting on big brands for absurd valuations.
This prediction isn't even for a 50% drop though. It's a measly 25% drop that I'm expecting. It's very easy for valuations to "compress" to more fair levels during a recession and when the federal reserve continues to hike rates.