Growth At-Any-Price Dangerous and Costly

From experience, any price-earnings ratio over 20 is suspect. During corrections, stocks like Tesla and Google could contract 25 to 30% with no change in their fundamentals. Historically speaking, growth-at-any-price was a disaster in the 1973-’74 market correction based on poor fundamentals for many growth stocks. 

Contrapuntally, the art market foolishly gave away the greatest pieces of the centuries as late as the 1950s. Van Gogh’s “Olive Trees” had to be bought in at £4,000 at Sotheby’s. Picasso’s work went for a hundred pounds along with Rouault and Braque. Such depressed prices are comparable with 90% declines in dot com paper like Amazon and Yahoo during 2001. In the prewar anxious year of 1940 Modigliani and Monet fetched just a couple of thousand pounds. Nobody cared, or paid attention. 

As the table below shows, even late fifties, Picasso just fetched 55,000 pounds for La Belle Hollandaise. 

I miss the ethereal markets we experienced in the late fifties and early sixties. Silicon transistors came of age then along with the Syntex birth control pill, Boeing’s 707 jet aircraft, RCA color television and Polaroid’s picture in a minute. Unless we face major wealth destruction in the stock market our outrageous prices for iconic art can hang in. A big call.

Note enormous premiums over the market that Morgan Guaranty Trust paid for its 9 largest holdings in 1972 just before the market tanked in the recession of 1973-’74. Avon Products sold at 65 times earnings and Walt Disney ticked at 81 times earnings. Today, they sell near the market multiplier under 20 times net income. Polaroid then ticked at 90 times earnings, but today is a total washout. Morgan then changed gears to a value construct for its portfolios in 1974. They were late.

I remember one of their comments “Geez! We should have seen this coming.”