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At the end of the day, stock prices have to be justified by earnings. A massive over valuation isn’t sustainable for very long.
by cm2187 7y ago
At the end of the day, stock prices have to be justified by earnings. A massive over valuation isn’t sustainable for very long.
- christophilus 7y agoI wonder. Investing is all about relative yield. If stocks return 0.5% and treasuries return -4%, stocks will sustain higher ratios than the historical mean. But I’m putting my money where your mouth is and betting on a correction.
- cm2187 7y agoTrue but you are taking say a -30% loss risk for only 0.5% expected return. I don’t think any risk manager is going to be very comfortable with that risk/reward.
- HPsquared 7y agoCash might have a similar risk (inflation).
- xvilka 7y agoJust use dynamic hedging, risks will be smaller.
- chii 7y ago> -30% loss risk for only 0.5% expected return. vs the alternative - a guaranteed loss of 4%? And the expectation of only 0.5% return is only going to be short term. Long term recovery is a good bet imho.
- bo1024 7y agoWhy? A lot of the value of a stock is ability to resell at a high price later. If everyone (including U.S. Fed and gov) agrees to continue to push prices high for the forseeable future, then it seems like prices can lose connection to e.g. ownership in a company.
- empath75 7y agoThat’s the definition of a bubble.
- enraged_camel 7y agoYeah, it made me laugh that the OP stated it in such a matter-of-fact fashion, as if it’s normal or good.
- bo1024 7y agoIf you're talking about me, I don't think it's normal or good! But I do think it's a matter of fact.
- bo1024 7y agoI agree, or pretty close. But it's not axiomatic that bubbles always pop (at least on the time span one expects).
- chii 7y ago> But it's not axiomatic that bubbles always pop You can only call it a bubble once it pops. So therefore, it is axiomatic. This stock "bubble" might not pop, and hence, it might not be a bubble.
- bo1024 7y agoYour definition of bubble and the one I was replying to are fundamentally incompatible - I don’t really care which term one uses though
- refurb 7y agoStock prices are forward looking - what do you expect the stock to do in the future. That's how you end up with companies with negative net income having valuations in the billions.