From the article:
- We’re using data going back to 1881. Should $1 of earnings generated by Facebook be worth as much as $1 generated by Standard Oil, or Edison General Electric?
- America’s first billion dollar corporation was U.S. Steel. In 1902 they employed 168,000 people and had sales of $561 million or $3,340 in revenue per employee ($90,000 in today’s dollars.) Today, U.S. Steel’s revenue is $493,000 per employee, 5.5.x the amount it was in 1902.
- Companies are so much more productive and efficient than they used to be. Of the 52 S&P 500 companies that make this metric readily available, only one has sales per employee less than $90,000.Facebook is doing $2 million in revenue per employee, 22x the biggest company at the turn of the twentieth century.
- How much would you pay for $1 of suspected earnings when accounting laws didn’t exist?
- Reg FD, which mandates that all publicly traded companies must disclose material information to all investors at the same time, did not exist until 2000! Investors like transparency and are willing to pay a higher price for it.
- Interest rates are extremely low. People would rather accept volatility in stocks than low returns from bonds.
- In 1996 there were over 8,000 publicly listed companies. Today there are just 4,500. Perhaps people are putting a higher valuation on a shrinking number of public stocks.
- The 401(K) was’t created until 1981. Millions of Americans are buying stocks every two weeks in their 401(k) and these buyers are mostly price-agnostic, driving up the demand for stocks.
- The costs for trading have come down enormously over time. Schwab just cut their commissions to $7 per trade!
- In 1870 just 3% of the population was above sixty-five, and 94.5% of males were working. Retirement didn’t exist. Today, 13% of the population is over 65 and 60% of them are employed. These people are living longer and need to grow their wealth. The higher demand for stocks might be pushing multiples higher.
Submitted March 02, 2017 at 12:53AM by xmr_eric http://ift.tt/2luNib6
