Fundamentally Unsound

John Hussman profile picture
John Hussman


  • It's wholly incorrect to imagine that the repeated bubble periods since the late-1990s somehow render historically-reliable valuation measures useless.
  • U.S. non-farm payrolls jumped by 4.8 million jobs in June, reducing the number of jobs lost since February to 14.7 million.
  • The richest 10% of Americans own 88% of the $29 trillion in corporate stock and mutual fund shares, according to data from the Federal Reserve itself.

Instead of judging the market price by established standards of value, the new era based its standards of value upon the market price. Hence, all upper limits disappeared, not only upon the price at which a stock could sell, but even upon the price at which it would deserve to sell. - Benjamin Graham & David Dodd, Security Analysis, 1934

As in all periods of speculation, men sought not to be persuaded by the reality of things but to find excuses for escaping into the new world of fantasy. - John Kenneth Galbraith, The Great Crash 1929, published 1954

Improvise is the keyword. There's so much give in the basics [cash flow, growth, and risk] that I can stretch them to meet just about any requirement that I need, any conditions I face. The historical data become a crutch. The first thing we need to do is abandon the need for it. Mean-reversion works until it doesn't. There are a lot of lazy arguments being made for stocks being overvalued because a normal P/E for the S&P is about 16. Where do you get that? Well, the Shiller data are from 1871 to 2009. Come on. - Aswath Damodaran, Barron's, June 2020

Valuations and long-term returns

Last week, my wife Terri was reaching for a coffee cup in the kitchen, and noticed a little piece of paper taped to the corner of the wall, near the ceiling. It read "$100." Admittedly, it was my doing. I had accidentally left it there for weeks.

It's an illustration I often use to explain how valuations work. Suppose that the $100 taped in the upper corner of the room will be delivered a decade from today, and you're deciding how much to pay today for that future piece of paper.

Drop your

This article was written by

John Hussman profile picture
Dr. John Hussman is the president and principal shareholder of Hussman Econometrics Advisors, the investment advisory firm that manages the Hussman Funds ( He holds a Ph.D. in economics from Stanford University, and a Masters degree in education and social policy and a bachelors degree in economics from Northwestern University. Prior to managing the Hussman Funds, Dr. Hussman was a professor of economics and international finance at the University of Michigan. In the mid-1980's, Dr Hussman worked as an options mathematician for Peters & Company at the Chicago Board of Trade, and in 1988 began publishing the Hussman Econometrics newsletter. Virtually all of Dr. Hussman's liquid assets are invested in the Hussman Funds. Note: Dr. Hussman is not an active contributor to Seeking Alpha; rather, SA editors excerpt regularly from Dr. Hussman's public commentary.

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