2 Big Mistakes Investors Have Been Making For The Last 10 Years

The Juice has been doing this — following stocks and all things money — for a long ass time. 

We read and hear lots of asinine stuff. But two things stick out most. 

Do these two things and you’re essentially getting in your own way. Do the opposite alongside the best sense of calm you can muster and you’re either already wealthier than you otherwise would be or you’re setting yourself up to get there.

This first one has been our pet peeve for like 10 years. Actually, screw 10 years. More like 20 years. Even since the dot-com crash of the year 2000 actually. 

Do you remember all of the people over the years who constantly warned of a bubble and screamed to not invest in, for example, Amazon.com (AMZN), because it’s overvalued. To a person, these market savants cited Amazon’s price-to-earnings (p/e) ratio as the metric to end all metrics. 

Back in the day, there were times when AMZN’s p/e ratio (when it started turning a profit) topped 1,000. Values well into the hundreds were routine. As we write this, AMZN’s p/e ratio is approximately 43. This is pretty much inline with the average p/e ratio in the S&P 500’s information technology sector. 

This means that, technically, AMZN is no longer overvalued. But if you think this simplistic view of evaluating stocks means there has never been a better time to buy AMZN, you’re the poster child for our pet peeve. 

Amazon’s p/e ratio is in line with averages now for no other reason than the fact that it’s a different company today than it was 10, 15 and 20 years ago. It’s more mature. It’s not growing revenue as quickly. During its high p/e ratio days, Amazon grew annual revenue in the 25% to 50% range. Today, it’s more like just over and, sometimes, just under 10%. 

Amazon commanded such a high p/e ratio and investors continued to run up its stock because the future growth prospects were enormous. 

Jeff Bezos used to say all of the time that Amazon wasn’t worried about being profitable. It was focused on reinvesting back into its business to realize and maximize this massive opportunity. 

Bezos was correct. The bets paid off. Amazon’s growth continued. The stock soared (and continues to go up). And, as most companies like this do, Amazon became a different type of business. It’s still a growth company, but not as much of a hyper growth company. Everything has sort of taken a step back. Apple (AAPL) might be an even better illustration of this phenomenon. 

However you illustrate it, the people who cried about p/e ratios back in the post-2000 days were wrong. That’s objective fact. History has proved them wrong. And The Juice thinks it will continue to do so, particularly on big-name tech stocks that have become juggernauts or are in the process of getting there, just as Amazon was 15-20 (and more) years ago. 

All to say, you can’t use p/e ratios to assess companies like this. It’s a metric that cannot take into account the long-term growth narrative at tech companies like this. One of the biggest mistakes investors made over the years was using the p/e ratio to argue that Amazon and other tech names were overvalued. 

Which brings us to point #2. 

Are you really not going to buy Nvidia (NVDA) because it has a p/e ratio of 75? Or Advanced Micro Devices (AMD) because it has a p/e of 190. 

Are you going to look at, say, NVDA’s drop on August 5th when the market tanked and be like all those old Amazon critics? Are you going to say, well it has finally happened? The party’s over!

If so, The Juice cries foul. Poppycock, in fact. 

Smart investors look at days such as August 5th and buy more. 

Since their August 5 low, here is how the Magnificent 7 stocks have rebounded, as of the trading day this Tuesday. 

The best of all possible moves to have made on August 5th was to buy more of each of these stocks. The second best move was to do nothing. 

The p/e-obsessed naysayers will say this is more irrational exuberance. They love to misuse that famous quote. All they’re doing is anticipating the same top they have been anticipating for decades now. A top that — notwithstanding ebbs and flows and fits and starts — has yet to materialize. 

The worst move would have been to sell. Unless, of course, you’re executing a retirement plan or something. Aside from needing access to your money, irrespective of what’s happening in the market, selling means you missed out on the inevitable rebound. We can call it inevitable because we have enough looks in the rear view mirror to know what tends to happen in these and similar situations.

The Bottom Line: So, yeah, don’t live and die by the p/e ratio and stay invested. Simple as that. 

If you missed the 10 best days in the stock market over the last 30 years, you would have halved your returns. This stat that bears repeating puts the down days in perspective and shows them for what they are. Buying opportunities.

Even in an election year, the sky isn’t falling. No matter who sits in the White House, The Juice thinks big tech remains in control of the stock market. And, with the AI boom in the early innings and little chance of meaningful government regulation in the US, we expect it to stay this way.

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