Looking back at recent historical market data, I saw things that's hard to explain even though I lived through it.
In 1998, the year building up to the dot-com bubble that burst in early 2000, I saw that the S&P was at 1282, and at a P/E of around 33.
In early 2000, when the NASDAQ hit its all-time high and was about to collapse, the S&P reached 1442, but its earnings rose such that the P/E declined to 27.
Even as the dot-coms and tech stocks imploded, earnings of the S&P continued to climb until the end of 2000, when they started to decline as the country entered into a recession in 2001. Then, 9/11 event occurred, and it was mayhem.
By mid 2004, the S&P earnings already recovered to the level it reached in mid 2000, even with inflation adjustment. What was the price? It was around 1100, compared to 1400 in 2000. And that was before inflation.
Why? Investors were not as gunho with stocks in 2004 as they were in 1998 or in 2000. The P/E of the S&P was down to 16 in 2004, compared to the mid 20 in 2000. Same earnings, but much lower stock prices. They loved stock, then they did not love it anymore.
Yes, that's P/E reversion, my fellow investors. It happened so many times before, and it will happen again. That's what Bogle has been warning us. And that's why long-term return of stocks is going to be in the single-digit when we talk time periods of a decade or more.
Sell, sell, sell? Not now, but soon.