The same company can be a good or a bad investment, depending only on the price.
What you pay decides what you earn.
One great company, Cisco, bought at five moments. Rank them by what $1,000 became by October 2026. Most first.
The same great company made people rich or kept them waiting 25 years. The price paid decided which.
← Red LinesRed Line 35 of 48 The idea The numbers Where you see it Where it bends This game’s numbersHow strong the proof is Where it comes from
A good company and a good investment are not the same thing. Pay too much and even growing profits can’t give you your money back.
Profits grow 7% a year for 10 years, and the price ends at 15 times profit. Paid 10 times profit, €10,000 becomes about €29,500. Paid 40 times, about €7,400: a loss on a good company.
The price-to-earnings ratio (P/E) is shown next to every share. It says how many years of today’s profit you are paying for.
A truly growing business can earn its way out of a high price, sometimes. Most can’t.
Reuters via Yahoo Finance, Cisco shares’ highs and lowsBenzinga, $1,000 in Cisco at the dot-com peakInvesting Daily, Cisco Systems has bottomed (2011)Stock Analysis, Cisco price history
=Outside the four steps: it follows from the arithmetic
True by the sumsThe same future profits bought at a higher price give a lower return. That is arithmetic; long data agree that dear markets earned less later.
- Valuation Ratios and the Long-Run Stock Market Outlook John Y. Campbell & Robert J. Shiller, Journal of Portfolio Management 24(2), 11-26, 1998
Checked 2 Nov 2026 · How we grade
- A Strong proof: Many good studies or long official data, from different teams or countries, point the same way.
- B Good proof, with limits: Solid studies agree on the direction, but the size varies, or the data covers few places or few kinds of people.
- C Mixed proof: Some good studies for, some against, or the evidence covers only part of the line.
- D Thin proof: Mostly one book’s argument, one survey or stories. It may be wise, but it has not been tested well.
- = True by the sums: It follows from arithmetic, so no study can overturn it. We still show what real data says.
Howard Marks, The Most Important Thing (2011). In our words, not quoted.
See it in numbers: P/E (From Zero)
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