Owning high quality but expensive stocks is great when multiples are rising. High returns & low biz risk - what's not to like? The Q is, how will investors react/behave if multiples start to decline and stocks go sideways/down for years. How long before ppl get tired of owing em?
Patience is in short supply in markets - due to both investor temperament and performance pressure. Most are unwilling/unable to hold stocks going nowhere/underperforming for years. People's perceptions & attitudes towards these stocks will change when multiples stop rising.
2-3yrs in, after years of stagnation, investors will start to see these stocks as dull/dead money, and start looking for cheaper stocks that have the opportunity for larger gains. Trends like this are self-reinforcing. This is how 10yr+ multiple derate cycles in quality happen.
The other issue is, the more time goes by, the more risk there is of unfavourable change. While you're suffering years of poor returns, risks also increase.
Case in point- GE. Ultimate 1990s quality stock. 1990-2000 multiple re-rate. 2000-16 de-rate. 2016-20 unfavourable change.
Case in point- GE. Ultimate 1990s quality stock. 1990-2000 multiple re-rate. 2000-16 de-rate. 2016-20 unfavourable change.
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