Excess Returns A Practical Guide to Market Valuation with Ben Carlson
10 snips
Sep 29, 2025 
In a captivating discussion, Ben Carlson, Director at Ritholtz Wealth Management and author of A Wealth of Common Sense, explores the complexities of today's market valuations. He highlights how changing market structures and the dominance of mega-cap tech stocks complicate traditional metrics. Delving into AI's impact on investing and the possible emergence of a bubble, Carlson shares valuable lessons from past market cycles, emphasizing the importance of diversification and setting realistic return expectations.
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Valuations Lose Historical Context
- Market valuations are much harder to interpret today because the market structure and company economics have changed.
- Long-term historical averages may be less relevant than the last few decades when firms became capital-light and high-margin.
Margins Have Permanently Risen
- Corporate margins have stepped up and may not mean-revert like textbook economics expects.
- Technology, capital efficiency, and concentration explain structurally higher profit margins today.
Use Valuations To Set Expectations
- Use valuations to set reasonable return expectations rather than to predict crashes.
- Prepare portfolios for lower expected returns when valuations are elevated instead of trying to time the market.