U.S. Stocks Are Riskier Than They Look (Here’s The Data)

Valuations haven’t been this stretched in 55 years.

The Buffett Indicator measures total U.S. stock market value divided by U.S. GDP. It’s one of Buffett’s favorite long-term valuation tools because it reveals when the market becomes disconnected from the real economy.

Here’s what’s changed:

What pushed it up recently?

This creates the illusion that stocks are “cheaper” than they are — especially when investors look only at forward earnings, not full-cycle valuations.

Supporting evidence from other indicators:

History lesson:
The last time the Buffett Indicator spiked this high was 2021.

The pattern is always the same:
High valuations make markets fragile.
Then something small breaks… and everything adjusts fast.

Today’s reading doesn’t guarantee a crash — but it does say one thing clearly:
Stocks aren’t cheap anymore, no matter how you slice it.

While the average U.S. lawmaker barely keeps up with inflation, Nancy Pelosi’s disclosed trades have compounded at over 21% per year for more than a decade.

Based on the strategy tracking her public filings, her returns have crushed the S&P 500 since 2014 by more than 3x.

KEY FINDINGS:

1️⃣ CAGR: 21.56% annually since 2014 — compared to the S&P 500’s ~15.28%.

2️⃣ Total Return: +856.79% vs. the S&P 500’s +264.63% over the same period.

3️⃣ Win Rate: 73.04%, with an average gain of +0.75% per trade and average loss of –0.17%.

4️⃣ Max Drawdown: –37.40% — confirming high volatility despite long-term outperformance.

When a company’s profit chart goes up and the valuation goes down, something deeper is breaking beneath the surface.

Lululemon’s valuation didn’t compress because the business fell apart — it compressed because the market stopped believing in the long-term growth story.

For years, LULU traded at a premium multiple thanks to exceptional productivity: nearly $1,600 in sales per square foot and 20% operating margins.

Bulls loved the global expansion potential, especially in China, which is already the world’s second-largest sportswear market.

They also credit LULU with pioneering athleisure, the only high-growth segment in an otherwise slow-moving apparel industry.

But the bear case finally caught up:

So even though EPS compounded at 27.6%, investors began pricing in a future where growth slows, margins tighten, and competitive threats multiply.

This chart shows the full robotics ecosystem — the major players that actually matter. But here’s the truth most investors forget:

There aren’t just 36 robotics companies. There are thousands.

And that creates a very specific type of investing risk:

Dreaming.

When a new industry explodes, investors start dreaming.
We imagine the small company we bought will:

But in reality?

Almost none of them make it. Most will stay small, get acquired, or disappear — even if the industry itself grows massively.

PayPal didn’t fall 80% because the business disappeared — it fell because the market no longer believes the growth story.

Why the Valuation Compressed

PayPal’s stock was priced for years of rapid digital-payment dominance. But growth slowed, competition intensified, and margins came under pressure — all while consumer spending weakened.

The combination crushed investor confidence, pushing PYPL from a “must-own fintech” to a value-stock reset.

Even though earnings per share kept rising, the multiple investors were willing to pay collapsed, which is exactly what you see in the chart.

Bull Case (What the Optimists See)

Digital payments still have massive growth ahead, giving PayPal a long runway globally.

Highly scalable business model → margins could expand again if growth stabilizes.

Two decades of experience in online payments gives PayPal a unique advantage as e-commerce keeps claiming more economic share.

Bear Case (What Investors Are Afraid Of)

Competition is closing in fast, from Apple Pay to Stripe to mega-platforms like Amazon, squeezing PayPal’s relevance.

Local payment dominance overseas (Alipay, WeChat, UPI) limits PayPal’s global opportunity.

Venmo monetization may remain limited, reducing PayPal’s ability to drive new growth.

Online vs. point-of-sale lines are blurring, putting PayPal directly in the path of much larger, more integrated competitors.

Bottom Line

Investors stopped paying up for slowing growth, intensifying competition, and blurry margins. Can sentiment turn? Maybe. But valuations never fix themselves.

🎬 Netflix buys Warner Bros. for $82.7B.

📈 Morgan Stanley hikes Nvidia target.

🔥 Skydance launches hostile WBD bid.

🍎 Apple hit by leadership shake-up.

🥽 Meta logs $70B VR loss.