With normalizing rates, companies will need to earn their higher valuations. Find lower-multiple companies with sustainable and growing margins.


Danton Goei: We know that the period after the financial crisis from 2009 until 2022 was a great period. So market returns, overall an average over about 13% a year over that period. The question is, how was that generated and is that repeatable? So we looked at, what are the components of that? As Chris mentioned, margin expansion is one of them and you can see that on this chart here, is that it did contribute.
That's something that's very important. We look at companies, we want to make sure that the companies that we are invested in have very durable margins that are sustainable or even able to grow over time. We know that a lot of companies actually are at historically high margins. That's one kind of worry that we think about going into the future, but the other really big contributor there that we think is likely unsustainable is PE expansion. You see there that actually about almost half of the price return over this period was driven through multiple expansion. We know that that, if you think about the next decade, is unlikely to happen again, especially from the multiples that we're starting today. That is something to think about when you're start thinking about where the index is today and what is the sustainable levers of growth going forward. Those drivers helped us last decade, unlikely to be big drivers going forward.

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