In Saturday’s WSJ, Jason Zweig points out an often overlooked fact:
Higher economic growth may not yield higher stock performance. The U.S. expanded faster in the 19th century than in the 20th, but stock returns were no higher. Over the past decade, Asia has had faster economic growth than Latin America, but Latin stocks have performed three times better. Why? Returns depend not only on tomorrow’s growth, but on what investors are willing to pay for that growth today. [Emphasis Added]
The factors that influence what investors are willing to pay change over time. Therefore, the most efficient way to identify the best investment opportunities is often by focusing on price itself.
