Making Money Minute - October 16, 2025
Update: 2025-10-20
Description
Making Money Minute with Ron Hiebert - Markets Historically Expensive
Two things make stock markets go up. Rising earnings are one. Historically companies have been able to increase their profits by about 6% per year over the long term. The second is investor willingness to pay higher prices to own shares. This second one is the biggest and most volatile factor. Markets are considered reasonable when share prices on average trade at 15 times annual profits and cheap when they are around 12 times. Currently markets are trading at more than twice bargain levels, because investors are feeling bullish. When prices get too far ahead of earnings growth, it is time to be cautious.
Two things make stock markets go up. Rising earnings are one. Historically companies have been able to increase their profits by about 6% per year over the long term. The second is investor willingness to pay higher prices to own shares. This second one is the biggest and most volatile factor. Markets are considered reasonable when share prices on average trade at 15 times annual profits and cheap when they are around 12 times. Currently markets are trading at more than twice bargain levels, because investors are feeling bullish. When prices get too far ahead of earnings growth, it is time to be cautious.
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