This article was originally published on ValueWalk
“The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.” – Warren Buffett 1
While the long expected earnings recovery has continued to push its realization date further out, equity markets have continued to march upwards. As indices have moved up while earnings have largely failed to keep pace, valuations, to the extent that one bases them on the current earnings power of the business, have increasingly extended themselves in the overvalued zone. The willingness of market participants to pay significantly more for the same stream of earnings is also reflected in exuberant behavior in primary markets.
- 1986, Chairman’s letter, Berkshire Hathaway. ↩