Has the stock market bottomed?

I have 40 minutes to send this email….my wife said she is 90% confident that I won’t be done writing this by 9:00 am. If this email hits your inbox before 9:00 am EST I made it. If not…someone please start a go fund me for me.

This has been a great month for The Growth Curve portfolio. Since July 13th, I was able to contribute $14,453, and the portfolio has appreciated by $22,381.

Over the last 30 days, I’ve made 4 purchases and 0 sells. Premium subscribers get alerts before I buy (or sell) and always have access to my current portfolio at this link.

I plan to contribute $3,000 per month, and I’ve contributed much more than that during the first five months of the portfolio….why?

Because I strongly believed “growth” stocks had been sold off indiscriminately. 

The market certainly got a little overvalued, then we had inflation, rising rates, etc which caused a lot of fear.

In those scenarios, people panic and rush to get out of risk assets. When that happens, EVERYTHING sells off. The good, the bad, the ugly.

I truly believe those environments are the best environments to pile as much cash as reasonably (responsibly) possible into great companies.

Instead of talking about it. I did it. With my own money. This is why I think this newsletter is cool. I’m not just talking about stocks. I’m investing my own money in them so you can see my skin in the game and if I’m any good at this investing thing or not.

22 minutes left to finish this email. Can you feel the suspense?

So where are we now?

Well, at the end of June, the , , and were all down more than 25%. They have since rebounded sharply. The is now down 24% from all-time highs with the down 18%, and down 11%.

Historically, when the and have been down 20%+ it has been a fantastic buying opportunity for long-term investors. But let's not make the mistake of blindly assuming this is always true.

We have to consider current valuations and growth expectations compared to historical averages. This sounds complicated…some people probably make it really complicated, but this is how I think about it.

On the chart below, you’ll see the and a bunch of lines going back to 2001.

The black line is the current share price at any given time, the blue line shows where the price would be at a P/E of 21.89 which is its average P/E ratio since 2001. The orange line represents where the stock price would be at a P/E of 15.

So immediately we can see that from the beginning of 2020 - the beginning of 2022, the black line was above the blue line. The was trading above its historical P/E.

The market was overvalued. 

2021 - 2022 has been a turbulent time and a lot of headlines have driven fear in the market. I’m not minimalizing any of the important events going on in the world. But if we just consider the markets, what if the drop in the overall market has just been a normal, healthy pullback that happens every 5-8 years on average and we’re not doomed to see a 2008-2009 type financial crisis that every click-bait headline wants you to think?

If it isn’t obvious, I don’t think we’re headed into a 2008-2009 type scenario. I think it’s a mistake to baseline every pullback or recession to a once in 50-year (or once in 100-year) type event.

6 minutes left… oh crap. If this email gets sent mid-sentence, you know why.

Alright so we looked at the since 2001 and it looks like it is now a bit undervalued compared to its average P/E since 2001 (black line below blue line). HOWEVER, the P/E was artificially high coming out of the .com bust and in my opinion, it was undeservingly high from 2020 - 2021. So I removed those time periods to get a better average.

That brings the average P/E down to 20.94 instead of 21.89 and as you can see, now that the has recovered from its lows, we're in line with the average P/E since 2002.

So what does all of this mean for investors?

Well, I think the market is basically fairly valued, and we should expect a normal range of returns. Meaning somewhere between positive or negative 10%. I wouldn’t be surprised by either.

If the market is extremely undervalued, I try to pile extra money in, if the market is extremely overvalued I will build cash, if the market is in a normal valuation range, I stick to my plan and continue investing as normal.

I think the market is in its normal valuation range with the caveat that some of my favorite growth stocks (and portfolio) have recovered strongly and are LESS undervalued than previously.

So I am now considering a few of my favorite dividend growth stocks for new contributions. I won’t be selling my current holdings or anything like that, I’m simply considering a couple of my favorite, high-quality dividend growth stocks that offer good risk-rewards moving forward for new money coming into the portfolio.

Paid subscribers will get buy alerts and write-ups on my thesis before I make any portfolio changes so consider subscribing if you’re interested in that.

It’s 9:03…crap