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Survivor Investing requires a good story why prices can only go up.

When you are about to buy a piece of paper with no intrinsic value except that someone else will pay more for it, you definitely won't want to ask yourself what it is "really" worth. You need a compelling story why someone else will pay more for the paper, a story that will divert you from such devastating thoughts. In my lifetime, there has never been as good a story as the New Economy. This story allowed the most cockamamie business plans to attract billions of dollars of new investment and the story supported a whole new class of investments: all p and no e. Meanwhile, during the Internet Rush, the price/earnings ratio of the venerable S and P 500 reached for 40 times earnings when 20 had seemed high by historical standards.

Growth in corporate earnings is a good reason for a high p/e ratio, if that growth can be expected to persist. Corporate earnings before tax are displayed below in constant 1996$ using a log scale which means that straight lines represent constant rates of growth. Over the corporate earnings curve I have placed a straight line representing 2.5% growth. The shaded regions are the US recessions, and, generally speaking, earnings have grown smartly during the expansions, have collapsed in the recessions, and have maintained a long-term rate of growth of 2.5%. But the recovery from the collapse of earnings in the double dip recession of the early 1980s was very very slow. Corporate earnings before tax in 1996$ were $537 billion in 1978 Q4 and did not return to that same level for fifteen years until 1993 Q2.

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* Edward E. Leamer,
Director, UCLA Anderson Forecast.
Check the link for author's profile: http://www.anderson.ucla.edu/faculty/edward.leamer/pdf_files/cv.pdf