Valuations don’t matter, at least not in the short term. That’s valuable perspective because the biggest U.S. companies are clearly expensive right now. It’s hard to justify today’s price for Amazon, Alphabet, Apple, Meta, Microsoft, NVIDIA, and Tesla by looking at earnings, cash flow, sales, etc. The metrics change by the day as more investors pile into these stocks, so I won’t bother to quote them. Just trust me, they are expensive.

Armed with that knowledge, you may want to take drastic action like sell out of those stocks or short sell them. Don’t! Fundamental valuations tell you very little about how a stock will move over the next year, let alone next month. These stocks could continue to ride their momentum ever higher, and you would miss out.

At the same time, you may want to rebalance or even strategically underweight these stocks because valuations matter in the long term. Valuations are useful for predicting returns over the next decade. That means those expensive large cap stocks may not be the best place to invest for money. Notice I said “may.” Crazy things happen in the market all the time, even over decades.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.