May 5, 2025
A lot has happened in the markets in 2025. But the truth is stocks were due to fall, whether from tariffs or something else.
Not long ago, the stock market was trading at the highest prices measured against earnings. Stocks were more expensive than in 1929 and more expensive than in 2000. In fact, you need to go all the way back to 1844, during the first railroad boom, to find a time in American history where stocks were this expensive.
It’s true that most of this overvaluation has been centered on the “Magnificent 7” stocks of giant technology companies. But there are plenty of other stocks trading at levels that don’t make sense.
For instance, recently McDonald’s was trading at 27 times its earnings. The stock has done well over time, but buying at the current price just doesn’t seem wise.
Looking at the company using Ben Graham’s measure of intrinsic value gives you a share price of $173. However, as of writing, McDonald’s is trading at over $300.00 a share, which is nearly twice the intrinsic value.
What I’ve seen in my over 30 years of investing and from financial history has taught me that bubbles find pins. Lots of people are going to blame President Trump for this decline in share prices. But these declines were inevitable.
Stock prices have been wildly inflated relative to history. They were bound to correct.