I can offer some evidence for this proposition from my post on the aging of tech companies, where I classified all companies based on their age and compare old tech companies (older than 35 years) with old non-tech companies. Note that old tech companies look cheap on every earnings metric, relative to old non-tech companies. Again, I can offer partial backing for this statement by comparing cash returned by old tech companies versus old non-tech companies. To illustrate this dynamic, I created two companies, both with 20-year windows and similar risk, but made one a tech company, with intense growth (50%) for the first 5 years, a short mature period of 5 years (10%) and speedy decline thereafter and the other one a non-tech company, with less intense growth (25%) for the first 5 years, a longer mature period of 10 years and a more stable afterlife. While Fed policy is important to the markets, I will be keeping an eye on Europe for clues as to the longer term equity market outlook.
Below, I list the 15 industries (not including financial services, where cash has a different meaning and a reason for being) that had the highest cash balances as a percent of market capitalization. When you peel away the China headline risk, what we have left in the news is the Ashley Madison data hack, which is as sensible a reason for unique boutique market weakness as the Ebola correction last October. There may be a reason why companies like IBM and Microsoft keep showing up on the lists of cheapest stocks, when you run value screens. The ratio may also be skewed upwards in highly levered companies, since market capitalization is a smaller percent of overall value in these companies. The bottom line is that tech companies look expensive on a PE ratio, when they are young, and cheap on a PE ratio basis, when they age, even if they are fairly valued. I love Ben Graham for his philosophy and intellect, but I think that using the techniques suggested in it to value tech companies is akin to using a hammer to do surgery.