What Goes Up, Must Come Down: On Multiple Expansion

“This time is different”.

Famous last words. We all want this time to be different.

Yet, maybe this time is different! Just not in the way we want. So many great companies are trading near all time lows.

Valuations should come down over time. As companies mature, revenue growth will inevitably slow. If growth days are over, future growth will be driven by margin expansion, which is always limited as well.

The beauty of being a long term investor is that you plan for multiple contraction. Even the best companies will eventually trade at or below the average multiple. Growth will inevitably slow as revenue gets extremely large (unless you are Amazon). Just look at Apple.

When you accept the inevitable and have a long enough time horizon, pulldowns make everything so much simpler. It might not be the path you expected, but if you still see the path to the destination, who cares?