10k Words - September 2020

Apparently, Confucius didn’t say “One Picture is Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy. 

Valuation is at the fore this month, starting with the simplistic view of the forward P/E multiple on the S&P 500 being right up at "dot com" boom levels, via The Felder Report. FactorInvestor shows the composition of the S&P 500 has shifted such that the top five "Tech Titans" are a larger part of the index now than they were in that boom twenty years ago. Apple's market cap is now greater than the national aggregate of stocks in countries like Germany - something unimaginable 10 years earlier - but now Apple, Microsoft and Amazon all have market caps greater than Australia's market aggregate. And despite these huge numbers for tech, it can still be argued, as per the chart from TS Lombard, that the rest of the S&P 500 is also expensive. On the other hand, @jsblokland looks at valuation relative to liquidity and illustrates that the market P/E multiple could be much higher! Finally, shifting to smaller companies, Verdad did some work on the impact of passive investment vehicles on small company valuations and showed that Blackrock ownership impacted on the EV/sales valuation metric for low-volume small cap stocks.


S&P 500 Forward P/E


Source: Bloomberg, The Felder Report



Tech titans' combined weighting in the S&P 500 has surged


Source: FactorInvestor


Market caps of entire countries relative to individual tech titans


Source: S&P Dow Jones Indices


Forward P/E multiple of tech titans v the rest of the S&P 500
Source: Bloomberg, TS Lombard


Historical relationship between S&P 500 P/E and excess liquidity


Source: Federal Reserve, @jsblokland



BlackRock AUM vs. EV/SAles of companies with low float & high BlackRock ownership


Source: Verdad


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