To investors who fret about historically high market valuations, Jonathan Golub has a simple message: You're missing the point.
"When people say 'Oh, well stocks look cheap or expensive compared to history,' it doesn't mean anything," said Golub, chief U.S. market strategist at RBC Capital Markets.
The fact of the matter is, the value of stocks has to be compared to other options the investors may choose from. The less one can make in bonds, the less one needs to make in stocks—or, stated differently, the less money that companies need to earn and distribute in order to attract the same amount of investment.
"It's so simple: The value of a stock are its discounted cash flows. And when the discount rate [the rate at which future cash flows must be discounted] falls, the value of a stock goes up," Golub said Thursday in a "Trading Nation" interview.
"When you have a 10-year bond yield at 2.2 percent, you should have a valuation of stocks with a P/E over 20," he said.