The notorious “Nifty 50” stocks were quite impressive, one might say. This group of 50 highly regarded U.S. blue-chip stocks dominated the bull market of the early 1970s and were traded at sky-high price-to-earnings (P/E) ratios. While they were initially perceived as “set ’em and forget ’em” or “one decision” stocks, the group experienced significant losses on average during the bear market of 1973-74.
As a cautionary tale, the Nifty 50 often serves as a reminder of the perils associated with purchasing popular growth stocks at inflated valuations. For instance, at the peak of the stock market in December 1972, the average P/E ratio for the Nifty 50 exceeded 40, more than twice that of the S&P 500. Drawing a parallel, Torsten Slok of Apollo Global Management recently likened today’s “Magnificent Seven” stocks to the Nifty 50, suggesting that these seven stocks are currently overvalued to a similar extent.
The Magnificent Seven stocks include:
- Meta Platforms (META)
- Apple (AAPL)
- Amazon.com (AMZN)
- Alphabet (Google) (GOOGL)
- Microsoft (MSFT)
- Nvidia (NVDA)
- Tesla (TSLA)
According to Slok, these stocks collectively boast an average P/E ratio of 53.0.
However, it is important to note that the Nifty 50 narrative is not entirely accurate. Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School, argues otherwise. Siegel explains that an investor who bought the Nifty 50 at the market’s peak in December 1972 and held onto them until the 1990s would have nearly matched the return of the S&P 500 index.
Contrary to popular belief, Siegel suggests in his book “Stocks For The Long Run” that a P/E ratio of 40 times earnings was not excessively high for a promising growth stock. He challenges the conventional wisdom on Wall Street that emerged after the crash of the Nifty Fifty.
In conclusion, while the Nifty 50 stocks eventually faced a significant downturn, it is essential to consider the long-term performance and evaluate whether their valuations were truly exorbitant. Siegel’s analysis prompts us to question the prevailing perception surrounding these stocks and invites a deeper understanding of stock market dynamics.
The Long-Term Potential of the Nifty 50 Stocks
Introduction
The Nifty 50 stocks have a remarkable history, especially when considering the exclusion of Wal-Mart from Siegel’s analysis. Despite this omission, Wal-Mart’s stock outperformed the S&P 500 significantly after the market’s peak in December 1972. In fact, Forbes magazine reported that from 1972 to 1996, Wal-Mart produced a staggering 15,854% return. Clearly, including Wal-Mart in the list of Nifty 50 stocks has a substantial impact on their long-term performance.
The Importance of Long-Term Thinking
During the 1973-74 bear market, the Nifty 50 stocks faced significant declines. To match or surpass the S&P 500, investors had to possess the patience and discipline required for long-term investing. Although these stocks were initially promoted as “buy ’em and forget ’em” opportunities in 1972, only a few investors held onto them during the bear market.
According to the late Charlie Munger, Warren Buffet’s right-hand man at Berkshire Hathaway, most investors underperform the market over the long term. Munger believed that true shareholders should be able to remain calm during market downturns and not be deterred by occasional declines of 50% or more. It is only through this steadfastness that investors can achieve above-average results.
The Magnificent Seven Stocks
While the Magnificent Seven stocks may have above-average P/E ratios, they still hold potential as long-term investments. By drawing parallels to the Nifty 50 stocks, it is reasonable to suggest that with a willingness to hold these stocks for an extended period, investors can potentially match or even surpass the returns of the broader stock market.
Investors beware: ‘Magnificent Seven’ are starting to resemble ‘Nifty 50’ stocks that got crushed in the 1970s market crash
Introduction
The market is showing alarming similarities to the infamous 1970s market crash. A group of seven stocks, known as the ‘Magnificent Seven’, is beginning to mimic the fate of the ill-fated ‘Nifty 50’ stocks from that era.
A Troubling Resemblance
The ‘Nifty 50’ stocks were once considered invincible, but they ultimately crumbled during the market crash of the 1970s. Now, the ‘Magnificent Seven’ appears to be following a similar path.
Global Economy at Risk
Despite the optimistic sentiments surrounding the global economy, it is important to note that we are not entirely out of danger. It is crucial for investors to exercise caution and stay informed about the potential risks ahead.
Conclusion
As an investor, it is vital to remain vigilant in the face of striking resemblances between current market conditions and past disasters. By understanding the history and preserving key details, we can make informed decisions and navigate the uncertain financial landscape with confidence.
