In a riveting discussion, Tobias Carlisle, author and host of Value After Hours, delves into the intricacies of market valuations and the ongoing struggle for value investing. He argues that today's market may be more overvalued than during historical peaks. Carlisle highlights the potential for mean reversion favoring small caps and value stocks despite an earnings recession. He also explores the transformative impact of AI, contrasts U.S. and Chinese markets, and discusses housing affordability challenges facing the economy.
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insights INSIGHT
Single-Year P/Es Mislead Investors
Single-year P/Es mislead because trough earnings spike ratios and hide buying opportunities.
Use multi-year measures like Shiller PE or Tobin's Q for a clearer long-term valuation picture.
insights INSIGHT
Aggregate Measures Show Record Overvaluation
Multiple long-run valuation metrics averaged together show the market at record overvaluation.
Record valuations imply lower future returns and greater volatility, though not necessarily an immediate crash.
volunteer_activism ADVICE
Redirect Rather Than Exit Equities
Don't exit equities entirely when the S&P looks expensive; instead redirect exposures to cheaper segments.
Consider small caps, value, and international where long-run measures are more attractive.
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In this episode of Excess Returns, we welcome back Tobias Carlisle — author, host of Value After Hours, and manager of the Acquirers Funds. Toby shares his candid perspective on market valuations, value investing’s long struggle, and why he still believes mean reversion will eventually swing back in favor of small caps and value stocks. We also dive into AI, global markets, the Fed, housing, and where investors might find opportunity outside today’s expensive U.S. mega-caps.
Market valuations: why today’s market may be more expensive than 1929, 2000, or 2020
The pitfalls of relying on single-year P/E ratios and better long-term valuation measures
The divergence between the “Magnificent 10” and the rest of the market
Small caps, mid caps, and value: where Toby sees opportunity despite an earnings recession
AI as both a transformative force and a potential bubble-like capital cycle
U.S. vs. international markets: structural advantages of American capitalism and where China is catching up
The Fed, interest rates, inflation, and how they really matter for value investors
Housing affordability and demographics as headwinds for the U.S. economy
Why Toby believes the “value vs. growth jaws” will eventually close
00:00 – Are markets more expensive than 1929 and 2000? 04:00 – Breaking down valuation charts: S&P, Russell, and mid/small caps 10:00 – Why single-year P/Es mislead investors 14:00 – Lessons from past bubbles: Nifty 50, dot-com era, and now 19:00 – Large vs. small: the longest run for growth in history 24:00 – AI’s impact: transformative technology or capital cycle trap? 32:00 – Toby’s personal experience with AI (and why it disappoints him so far) 33:00 – U.S. advantages vs. international markets and China’s rise 41:00 – Are today’s U.S. valuations justified? 45:00 – The Fed, interest rates, and speculation 46:00 – Housing affordability and demographics as headwinds 55:00 – Should value investors care about macro? 59:00 – Closing question: Toby’s contrarian belief on value vs. growth
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