For expensive valuations, people always quote Nifty 50 of US in 1972. Some companies died. Some did mediocre. Just three companies alone (Wal-Mart, Philip Morris and Anheuser-Busch) out of fifty, not considering other survivors, delivered far higher future returns than S&P 500.
Out of Nifty 50, we also do not take into account how much stocks like Walt Disney, Procter and Gamble, PepsiCo delivered in subsequent decades despite being bought at high valuations.
Assume you invested $50 equally into US Nifty Fifty in 1972. The $3 representing Wal-Mart, Philip Morris& Anheuser-Busch alone gave higher returns than $50 invested in S&P 500. Remember we're completely ignoring other 47, out of which sizeable stocks became great wealth creators.
Not suggesting to buy at expensive valuations. But even if you overpay for a diversified basket of good quality companies, should be able to do better over one to two decades.
Another example given is what if someone has bought Infosys at 300 PE. No doubt it was a foolish decision. But if the same investor has bought 10 or 20 quality companies (diversified basket including Infosys) in 2000 at prevailing prices, I’m confident he would have beaten index.
For good quality companies, what we consider as an expensive price today would look cheap in hindsight ten years down the line.
It took 10 years for me to come out of low PE mindset. Missed good quality companies and steady compounders due to the same.
Many value investors look only at price and not the value that can be created in the long run.
I would rather overpay and buy a good company foregoing first few years of return than buying a lousy company even if it is cheap.
In a country like ours, where there is a long run way of growth is available, difficult to get good quality companies cheap.
