The mythical film exists somewhere, though nobody is quite sure where.

Maybe it's buried deep in a big record company's vault or in someone's basement, but somewhere there is film footage of a Cleveland concert on October 20, 1955, featuring Bill Haley & His Comets and Pat Boone with a handsome 20-year old unknown heartthrob opening act dressed in a pink sport coat.

The unknown act you ask? Elvis Presley, of course!

This gig would be the first time Elvis was filmed performing live north of the Mason-Dixon Line, but one of the last before he changed the face of rock-n-roll music forever in January of 1956 with his Heartbreak Hotel single release on RCA records.

(Interesting aside #1 - The Heartbreak Hotel single went right to the top of the radio charts after its release, displacing the headliner of that show and long-time Billboard champion Bill Haley & His Comets!)

(Interesting aside #2 - Cleveland disc-jockey legends Alan Freed, Bill Randle and Tommy Edwards built up the Cleveland music scene to the point where any aspiring national act had to first be "blessed" by the DJs and Cleveland music fans … Randle organized the Cleveland show and was very influential in getting Elvis's first national record deal with RCA.)

The original 48-minute film was supposed to be cut down to a 20-minute short for national distribution, but never made it that far. As of today, 63 years after its was produced, the footage remains unreleased. There is some dispute over whether this film actually exists (we believe it does as it was shown publicly, albeit only once, in Cleveland, and excerpts were also aired on a Cleveland television station in 1956).

But think about the value of the footage today. Actual footage of Elvis BEFORE he became a living legend. It would be a national cultural treasure. Totally priceless!

The elusiveness of the Elvis footage reminds us of the elusiveness of finding good value in U.S. equities these days.

One of the measurements of value (but not the only) we use in our evaluation of the equity asset class is the aggregate "price-to-earnings ratio" (P/E ratio) for all of the stocks in the Russell 3000 Index (a collection of small-, medium- and large-sized companies in the U.S.). This ratio takes the total market value of all 3,000 stocks in the index divided by the total earnings of all those stocks. Today that ratio is 16.7, which means the market value is 16.7 times larger than the earnings. The higher the ratio goes, the more expensive or rich the market is thought to be and vice versa. This is a good proxy of value because the value of stocks is based on the expected stream of future earnings. It is always better to buy stocks at lower valuations than higher valuations, as the expected returns are higher.

Looking back over the last 10 years, the P/E ratio for the Russell 3000 also has averaged around 16.7:

Save the quick selloff in January and February of 2016, the Russell 3000 Index P/E has rarely been around these valuation levels since 2013 and may indicate U.S. equities are somewhat inexpensive today compared to recent history.

We believe markets are mean-reverting and tend to move towards a central trend and away from extremes. As value investors, we prefer to buy or add to equity positions when they go "on sale" after markets get "All Shook Up" in the short term. Likewise, we like to sell or trim when they are "rich" or expensive compared to history to avoid the inevitable "Heartbreak Hotel" as valuations move lower back towards the trailing average.

Needless to say, it pays to have a “Burning Love” of buying low and selling high!

 

Contact Russell Moenich to learn more about this topic.
330.255.4330 | rmoenich@sequoia-financial.com

 

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