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Marc joined Global X in 2023 and is a key contributor to the Product, Strategy and Research teams, with responsibilities including investment research and ETF analysis to facilitate market insights, product development, investment strategy and portfolio construction. Marc has a decade of experience in the industry, previously working at Stockspot, Morgan Stanley, AMP and KPMG. Marc holds a Bachelor of Business from the University of Technology, Sydney (UTS), a Diploma of Financial Planning, and has completed CFA Level 1.
Let’s face it, no one enjoys overpaying for things and everyone loves a bargain. But in markets, just because prices seem high doesn’t mean opportunities don’t exist. Despite headlines warning us that markets are “expensive”, it’s important to remember that not all parts of the market move in unison. The key is knowing where to look, focusing on quality businesses with sustainable earnings and sensible valuations. As Warren Buffett put it, “Price is what you pay. Value is what you get.”
I had the honour of speaking about this topic at this year’s ASX Investor Day. It was a fantastic experience to be part of such a well-organised event. The calibre of the conversations, thoughtful questions, and overall engagement from investors was truly inspiring and gives me confidence that investing is alive and well in the Australian market.
You can watch my pre-recorded presentation below or read on:
Key Takeaways
Markets may seem expensive by many historical and traditional valuation measures, making it a challenging environment for investors to find value.
However, these elevated valuations may be justified by long-term structural shifts like lower interest rates and rising corporate profit margins.
To navigate today’s expensive market, investors may want to focus on companies that offer sustainable earnings and quality fundamentals, without overpaying, delivering growth at a reasonable price (GARP).
Are Markets Really Expensive?
To gauge whether the market is currently expensive, we can revisit the typical value investor’s toolkit - starting with historical valuation metrics.
One way to measure this is through the Cyclically Adjusted Price to Earnings (CAPE) ratio, developed by Professor Robert Shiller. Unlike a standard Price to Earnings (P/E) ratio, CAPE looks at 10 years of inflation-adjusted earnings to smooth out market noise. Right now, the US CAPE ratio is well above its long-term average, levels we’ve only seen before stock market corrections like the great depression and dot com boom.
Even broader valuation metrics used by active value managers point to the same conclusion: markets appear expensive by historical standards.
Does that mean a crash is imminent? Not necessarily. But history suggests that when valuations are stretched, future returns tend to be lower, making selectivity and valuation discipline all the more important for investors to consider.
Don’t Mistake Familiarity for Value
Australians have long felt at home investing in the big banks, they’ve been the bedrock of the local market for decades. But comfort doesn’t always equal value. In 2024, Australian banks were responsible for more than 80% of the ASX 200’s total return, with CBA alone contributing around a third. CBA is now a $300 billion company, becoming the first ASX-listed company in history to reach this valuation.1
Here’s the catch: Australian banks are currently the most expensive globally, trading at two to three times book value, trading at higher PE multiples and exhibiting lower profitability than their global peers.
That’s despite falling dividend yields and structural questions around long-term growth and dividend sustainability. Familiarity can be reassuring, but investors should be wary of paying premium prices for slow-growing businesses.
The Bigger Picture on Valuations
Some investors might rely on mean reversions, but valuations don’t just snap back to long-term averages because we want them to. They move in cycles driven by long-term economic factors like inflation, interest rates, and corporate profitability.
Over the past 40 years, we’ve witnessed a dramatic decline in interest rates, from around 16% in the early 1980s in the USA to near zero during the height of COVID-19 (and even negative in parts of Europe).2 Why does this matter? Lower interest rates increase the present value of future earnings, making long-duration assets, like equities, more attractive.
At the same time, today’s leading companies are structurally more profitable, with global scale, high margins, and strong pricing power. That might justify higher valuation multiples, not as a sign of excess, but as a reflection of a different market regime.
In this context, elevated valuations for high-quality businesses may not signal a bubble, but perhaps a new normal. Still, for investors, the challenge remains: how do you find opportunity in a market where almost everything looks expensive?
So What’s the Answer?
Growth and value investing behave like a pendulum, with each style taking turns in the spotlight. But these shifts don’t happen on a schedule. There are periods, sometimes lasting years or even decades, where one style outpaces the other. Rather than trying to time the switch, investors might consider a more balanced and symbiotic approach, one that captures the benefits of both styles.
That’s where Growth at a Reasonable Price (GARP) comes in. GARP strategies aim to blend the best of both worlds by trying to find companies with strong growth potential, but without paying extreme valuations. It steers clear of speculative, high-flying stocks and also aims to avoids value traps.
Instead, GARP focuses on profitable, cash-generative businesses with solid balance sheets and solid revenue and earnings growth. The strategy has historically shown some defensiveness during downturns and strong resilience during recoveries, outpacing the broader market during rebounds following events like the GFC, COVID-19, and even the volatility around the Trump-era tariffs.
For Australian investors wary of stretched domestic bank valuations, there may be merit in looking beyond the equity side. Bank debt is emerging as an attractive alternative, offering higher yields than term deposits, corporate bonds, and even bank shares in some cases. For those seeking income without equity risk, it could be a compelling part of a diversified portfolio.
Final Thoughts
Finding value in an expensive market isn’t about chasing the cheapest stock or the flashiest growth story. It’s about identifying companies with real substance - those delivering strong earnings, showing resilience through cycles, and trading at sensible valuations.
That’s the core of GARP - growth that’s grounded in fundamentals. It’s a disciplined approach that helps investors navigate richly valued markets without sacrificing long-term potential. By focusing on quality, avoiding hype, and staying patient, investors can still uncover opportunities even when headline valuations look stretched. Because in the long run, what matters most isn’t timing the market, it’s time in the market, holding the right businesses at the right price.
Footnotes
Australian Financial Review (June 4, 2025): Investors cash in as CBA soars past $300b but distortion fears grow
