No. of Recommendations: 5
Is the S&P 500 outrageously overvalued?
I am finally concluding that if the large cap tech companies continue to compound earnings at 10%+ (currently much higher) annually, then they probably are not overvalued. Pharma traded at a P/E of 25+ for years based on drug launches and patent protection. Even so, it was rare to find a 10% annual compounder uninterrupted for a 10+ year period. I was fortunate to own a few. KPH (Key pharmaceuticals) and ALXN (Alexion). Only 3 drugs amongst the two of them created enormous wealth. Since tech heavyweights are such a large portion of the S&P 500, if they continue to find ways to keep up the growth they are likely to force the S&P 500 to outperform almost any money manager that is not concentrated in the few. So even with BRK lagging over the past few years, I am not confident that BRK will outrun them in the longterm. That being said, BRK has and continues to perform at a very high level of returns. And Buffet accomplishes this with a significantly lower business risk.