One of my favorite investing adages, one I learned early in my career, is this:
"The four most dangerous words in investing are, 'This time it's different.'"
It's one of those phrases that sounds almost cliché until you've lived through a few market cycles.
Over the past several months, I've found myself thinking about it more and more.
Not because our clients are suddenly becoming stock traders. Quite the opposite. Historically, very few of our clients have wanted to own individual stocks.
But lately...
The conversations have started to change.
More clients are asking about buying individual companies.
Not because their retirement goals have changed.
Not because their financial plans have changed.
But because the stories have changed.
Every bull market eventually reaches a point where the conversation shifts.
It stops being about investing.
It starts becoming about missing out.
The names are always different.
The emotions never are.
That reminded me of one of the most fascinating chapters in investing history: the Nifty Fifty.
If you weren't investing in the late 1960s or early 1970s, you've probably never heard of them.
Yet chances are, you've lived through your own version.
The Nifty Fifty wasn't an official index or even one universally agreed-upon list. It was a nickname given to a group of America's most admired growth companies.
Coca-Cola.
McDonald's.
Johnson & Johnson.
IBM.
Polaroid.
Xerox.
These weren't speculative businesses.
They were extraordinary businesses.
So extraordinary, in fact, that Wall Street began referring to them as "one-decision stocks."
The idea was simple.
Buy them.
Hold them forever.
Don't worry about the price.
After all...
How could you possibly overpay for the greatest companies in America?
To be fair, Wall Street wasn't wrong about many of those businesses.
Several became icons of American capitalism.
Some remain among the greatest companies ever built.
The mistake wasn't recognizing extraordinary companies.
It was becoming so certain of their future that investors began believing the normal rules no longer applied.
They gradually stopped asking one of the most important questions in investing.
Not...
"Is this a great company?"
Everyone already agreed that it was.
Instead...
"At what price?"
By the end of 1972, one widely studied group of Nifty Fifty stocks traded at an average price-to-earnings ratio of nearly 42, compared to roughly 19 for the broader S&P 500. More than one-fifth traded above 50 times earnings, while Polaroid approached nearly 95 times earnings.
Investors weren't simply paying a premium.
They were paying prices that assumed years of extraordinary growth with very little room for disappointment.
Then history reminded investors of something they had temporarily forgotten.
The danger wasn't necessarily the companies.
It was the illusion of certainty.
Investors weren't wrong to admire these businesses.
They were wrong to believe the normal rules no longer applied.
They believed the future was simply too bright to justify asking difficult questions.
Questions like...
"What if growth slows?"
"What if expectations have simply become too optimistic?"
"What if this time isn't different after all?"
When the market corrected, the Nifty Fifty declined roughly 60% as a group. Some individual companies fell 70%, 80%, or even 90%.
Many of the businesses continued growing.
Many eventually lived up to their reputations.
But on average, investors who bought near the peak waited roughly a decade just to get back to even.
Think about that.
You could have been absolutely right about the business...
...and still disappointed by the investment.
The Nifty Fifty wasn't primarily a story about bad companies.
It was a story about what happens when confidence quietly becomes certainty.
And certainty convinces us that history no longer applies.
As I think about the conversations I've been having with clients lately, I realize they aren't really about any particular company.
They're about something much deeper.
The belief that today's opportunity may somehow be exempt from yesterday's lessons.
Maybe it is.
Maybe it isn't.
But history has a habit of humbling those who become too certain.
Every generation experiences extraordinary innovation.
Every generation produces remarkable companies.
Every generation becomes convinced it has discovered the exceptions.
History has a habit of suggesting otherwise.
At Perennial, we spend far less time trying to identify tomorrow's greatest company than we do helping clients build diversified portfolios capable of succeeding across many different outcomes.
Because successful financial plans shouldn't depend upon correctly predicting a single winner.
The companies change.
The technologies change.
The stories change.
Markets evolve.
Human nature doesn't.
Which is why history has a habit of asking the same question every generation.
"Is this time really different?"
Maybe.
But before answering...
It's probably worth remembering just how confidently every generation before us answered that very same question.
Important Disclosures
John B. Petrick is a registered representative with and securities offered through LPL Financial. MemberFINRA/SIPC. Investment advice offered through Perennial Investment Advisors, a registered investment advisor. Perennial Investment Advisors and Perennial Financial Services are separate entities from LPL Financial.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.