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Analyzing High Multiples in Investments
Investors need to look beyond the immediate high multiples and consider the base rates to understand if a paradigm shift has occurred in the market. By evaluating causal drivers and considering if there is a significant change that could justify the high multiples, investors can determine if it is a reasonable investment. This approach helps to differentiate between what's unusual and what's normal in the market, enabling better assessment of investment opportunities and fostering skillful counterfactual thinking.