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François Rochon: Never Overpay – Even for The Best of Companies

In this interview, Francois Rochon, CIO of Giverny Capital, discusses how a handful of dominant companies—such as Amazon, Apple, Microsoft, and Nvidia—have significantly influenced the S&P 500’s performance in recent years. Their rapid growth has increased their weighting in the index, encouraging more investors to adopt indexing strategies, which further reinforces their dominance.

Rochon also cautions against the dangers of overpaying for even the most successful companies, drawing parallels to the tech bubble of the early 2000s. He uses Cisco Systems as an example, noting that its high P/E ratio in 2000 constrained long-term returns despite strong earnings growth. Additionally, Rochon emphasizes the difficulty large-cap companies face in maintaining high growth rates due to the law of large numbers.

So there’s a danger of overpaying for even the greatest companies. The law of large numbers makes it, at some point, much harder to compound at 15% per year. You need another trillion of market cap addition in the next five years to justify 15% growth. So, when it trades at 30, 35, 40 times earnings, I mean, the street expects high growth rates.

And at some point, it’s going to be just impossible to continue at those high rates. But so far, they’ve [Amazon, Apple, Microsoft, and Nvidia] been incredible performers.

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The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.

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