Multiple risks compound at high valuations, Meb Faber notes

Multiple risks compound at high valuations, Meb Faber notes
High valuations amplify failure risk

Meb Faber highlights comments from Paul Kedrosky on the risks associated with high valuations.

According to Kedrosky, when valuations are high, there are numerous potential paths to failure, each with a low probability individually, but collectively they become significant. He suggests that what may appear to be a modest risk can become more severe due to the compounding effect of multiple low-likelihood failure routes.

Faber has previously commented on shifting market dynamics among major firms, recently noting that competition is intensifying between asset managers after moves by Schwab and Fidelity. He has also challenged common assumptions about returns, highlighting historical data that shows bonds outperformed stocks for much of the nineteenth century. These earlier observations provide further context for his focus on risks tied to market valuation.

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