Quality Has a Price. Investors Keep Forgetting.
Three Periods of Euphoria, One Recurring Mistake.
In 1999, Walmart traded at 48 times earnings. Five years later, it traded at 19. The business kept performing well the whole way down. Revenues grew, the moat held, the cash machine hummed, and the stock still lost 21 percent over those five years. A high-quality company. But at that price, a poor investment.
Today, Walmart trades at 44 times earnings…
This is the trouble with the word “quality.” It keeps getting confused with “safe.” Investors generally don’t lose money on quality stocks because of business failure. They lose money because they bought the right business at the wrong price, and the valuation multiple did what sky-high valuation multiples often do: succumb to gravity. Quality is not a margin of safety when the price already assumes perfection.
Over our firm’s fifty-year history, we have watched this story unfold twice before. Today’s market may be beginning to rhyme with those earlier episodes.
When we opened our doors in 1975, our timing was inadvertently perfect. We showed up just as stocks caught up in the prior bubble were finishing their fall to earth. While others were nursing losses, we remained focused on the bargains they overlooked: businesses that hadn’t been popular enough to get overpriced in the first place.
The Nifty Fifty
The first bubble was the Nifty Fifty, the late-1960s “one-decision stocks” with such great future prospects, the consensus held, that you bought them at any price and never sold. The Nifty Fifty consisted of household names like Polaroid, Avon, Xerox, McDonald’s. The crème de la crème of American business. By 1972, the group traded at 42 times earnings, more than double the S&P 500’s 19. Investors said these weren’t ordinary companies. The old rules didn’t apply.
In the 1973–74 bear market, the Nifty Fifty fell 60 percent on average:
Polaroid lost 90%
Avon, 86%
Xerox, 72%
McDonald’s, 70%
Some of these companies were fine. McDonald’s, in particular, would eventually regain its momentum to continue its remarkable ascent. But the average Nifty Fifty stock took a decade to recover to its previous highs. Investors who bought at the peak didn’t break even until the early 1980s.
The lesson was clear: price matters, even for great businesses.
Meanwhile, many of the high-quality businesses investors had ignored, the ones without fashionable growth stories, did what sensibly priced companies can do over time: compound.
The Second Quality Bubble
The second quality bubble tends to be overlooked, because the dot-com mania of the same era stole the headlines and had an even greater fall from grace. But quietly, in 1999, it was déjà vu on a quality bubble. The names once again consisted of the best of corporate America. Home Depot at 58 times earnings. Walmart at 48. General Electric at 42. Coca-Cola at 38. The S&P traded at a rich 26 times earnings, and these were the companies investors felt safest owning.
Five years later, all four had fallen significantly:
Home Depot’s valuation fell from 58 to 17—a 71% drop—delivering a negative 36% total return
Walmart’s valuation dropped by 60% and the stock lost 21%
GE’s valuation declined by 52% and the stock lost 22%
Coca-Cola’s valuation dropped by 46% and shares lost 22%
Every one of these companies kept growing earnings the whole time.
Every one was still excellent in 2004.
Every one lost money for the investor who bought it in 1999 at an elevated valuation and continued to hold it through 2004 after the valuation contracted.
So what caused these stocks to decline? It wasn’t a deterioration in business quality or even their long-term fundamental outlook.
The stocks were priced for perfection, and when reality arrived with anything less than perfection, investors rethought what they were willing to pay for these businesses.
Are Investors Repeating the Same Mistake?
Fast-forward to today, and the script feels familiar:
Costco at 47 times earnings is approximating Walmart’s 1999 peak
Walmart itself is back at 44 times, nearly the same level that preceded five years of losses
GE Aerospace at 36
Cintas at 32
Fastenal at 35
The S&P is selling at 21 times earnings, but the price of buying the best companies in America is significantly more elevated than that.
The arguments are familiar.
Costco has perhaps the most loyal customer base in retail. Walmart has scale that would be nearly impossible to replicate. GE Aerospace has an attractive aircraft-engine business model with limited competition. Cintas has route density that is effectively impossible to displace. Fastenal has a strong competitive moat rooted in a vast, localized distribution network.
None of those arguments are wrong... But similar arguments of dominance were made in both the early 1970s and 1999, and investors who bought those “can’t lose” stories still experienced significant losses that took years to recover.
The question for an investor in 2026 isn’t whether these businesses are great… They are. The question is the same one that mattered in 1972 and 1999: from a 40-times-earnings starting point, what do the next five years have to look like for this to work?
Profit margins hold
Growth accelerates
The valuation multiple doesn’t fall
If all three happen, you’ll probably do fine. If any one of those metrics falter, the correction can be swift and severe, and history’s track record from forty-times starting points isn’t encouraging.
What Should Investors Do?
We’re not saying investors should exit the market, nor are we claiming that we have reached the same valuation extremes as the 1970s and 1990s period. What we are saying is that the same market that has crowded into a handful of premium-priced compounders has wandered away from high-quality businesses trading at sensible prices. That’s where the Boyar Value Group is concentrating our efforts.
Our preference is not to abandon quality, but to find it where expectations are lower, valuations are more reasonable, and catalysts are being overlooked.
Four Names That Make Sense
Uber generates roughly $9.8 billion in cash each year from a business model that collects a fee on every mile and meal it touches. At the current depressed valuation, the market is pricing in autonomous-vehicle displacement. The reality? Uber is more likely to benefit from than be hurt by this trend as the addressable market opportunity surges.
Madison Square Garden Sports owns the Knicks (Forbes value: $9.75 billion) and the Rangers ($4 billion) yet trades for significantly less than the combined value of both teams. In February the company announced it would explore separating the two teams. The possible next step to unlock shareholder value? The sale of all or part of each team...
Cooper Companies is one of four players in the attractive global contact-lens business, with two activist investors engaged, improving cash flows, and a CEO buying his company’s stock on the open market.
MGM Resorts is a dominant player in gambling, has bought back more than 45 percent of its shares since 2021, and has significant digital and brick-and-mortar growth opportunities ahead.
Stocks for the Long Run
These aren’t short-term trades. They are situations where good businesses are selling below what we estimate they are worth, with identifiable catalysts that could help close the gap over time. That is exactly where we think some of the best opportunities lie over the next three to five years.
Warren Buffett put it simply: price is what you pay, value is what you get.
When you buy a stock at forty times earnings, you’re paying a very high price. For that investment to work out, the company needs to deliver exceptional growth for many years just to justify what you paid. The math is unforgiving… Most companies, even great ones, can’t clear that bar.
The companies on today’s quality roster will almost certainly still be excellent in 2031. Whether investors who currently own their stock will do well from these prices is a different question entirely.
To learn more about how the Boyar Value Group can assist with your research or money management needs, please email amalia@boyarvaluegroup.com or