From the Desk of Don Yocham: Time is money.
Or, more precisely, time costs money. And thanks to the Federal Reserve, money costs a lot less over time than it did 20 years ago.
On the eve of the 21st Century, the Fed managed the price of borrowing money overnight at 5.3%. Today, it sits at 0.06%.
And that manipulation has brought the cost of money down across the board, whether you borrow money overnight or for 30 years.
For example, the price of risk-free money for 5 years went from 6.36% to 1.43%. For 10 years, it went from 6.45% to 1.41%. And for 30 years, it dropped from 6.48% to 2.09%.
Interest rates sit at a mere fraction of what they were 20 years ago. That means a dollar worth of profits is worth a lot more now than it used to be.
But traditional valuation metrics don't account for the price of money. In fact, they miss a lot.
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