By: Dividend Sensei
In part one of this series, I explained why the dangerous market bubbles in popular stocks such as Airbnb, Tesla, and Doodash could cost investors a fortune in the coming years. Now I want to help you learn how to spot safe anti-bubble blue-chips, that can be safely purchased even in today’s market bubble.
Even in This Market Bubble, Great Companies Are Always on Sale
In March 2000 the S&P 500 hit a forward PE of 27.2. This was the greatest stock market bubble in US history. It meant stocks were 66% historically overvalued. And over the next 10 years, investors earned –1% annual total returns as a result.
You might imagine that there were no good investments you could make in the most extreme bubble in US history. After all, when even Coca-Cola (KO) was trading at more than 40X earnings, how could any investor find a good deal?
Great blue-chip deals are always available, no matter how overvalued the stock market gets.
- Berkshire Hathaway (BRK.B) was 50% undervalued in March 2000
- Realty Income (O) was 50% undervalued in March 2000. Its price to cash flow was 7X and it yielded a very safe 11%.
- Enterprise Products Partners (EPD) was 50% undervalued. Its price to cash flow was 6X and it yielded a very safe 12%
Prudent long-term investors who avoided paying crazy valuations for stocks didn’t just avoid the stock market’s “lost decade” they made a fortune.
- BRK investors who bought during the tech bubble low made 25.1% annually over the next 15 years.
- Realty Income investors made 17.7% annually
- Enterprise Products Partners investors made 23.8% annually
Smart long-term investors who recognized the difference between value and price during the tech bubble made 1,100% to 2,800% returns over the next 15 years. They literally achieved results on par with the greatest investors in history. More importantly, they locked in the kinds of safe, generous, and steadily growing dividend yields that rich retirements are made of.
Think that such glorious Buffett style “fat pitches” were only available in the 2000 tech bubble, created by outrageous excesses back then? Think again.