This is just an uneducated hypothesis, but maybe the implied risk adjusted discount rate of cash flows is actually quite high?
For instance, assume that investors don't really care about cash flows beyond 10 years. After all our government puts out 10 year budgets. It seems a reasonable assumption.
So in that case, if you run the numbers you will find that the discount rate has to be about 20% annually in order for the 10th year earnings to be worth 10% what they are today:
80%^10 = 10.73%
At that rate, the first 3 years of earnings represent 54% of the value, and the first 2 years are 40% of the value.
All of this ignores the book value of a company, but often these days companies are funded by debt, so equity investors may not even be expecting to pick up the scraps of a bankrupted company.
Finally, stocks themselves may have been at an unfortunate peak, right at the time of this correction. So they also have to correct whatever amount they were overvalued by in the first place.
For instance, assume that investors don't really care about cash flows beyond 10 years. After all our government puts out 10 year budgets. It seems a reasonable assumption.
So in that case, if you run the numbers you will find that the discount rate has to be about 20% annually in order for the 10th year earnings to be worth 10% what they are today:
80%^10 = 10.73%
At that rate, the first 3 years of earnings represent 54% of the value, and the first 2 years are 40% of the value.
All of this ignores the book value of a company, but often these days companies are funded by debt, so equity investors may not even be expecting to pick up the scraps of a bankrupted company.
Finally, stocks themselves may have been at an unfortunate peak, right at the time of this correction. So they also have to correct whatever amount they were overvalued by in the first place.