Can we see the footprints of Mr. Market Bubble?

Recently, a very hot topic in the city is "Are we living under the stock market bubble?" Before that, why don't we look at the past first.



Statistics from:
http://www.webb-site.com "Article: Incredibubble!"

Over the past thirty years, the H.S. index dropped over 30% nine times. But, the nature of the fall was different. In 83, 84, 87 and 89, the bottom reached within few months. Except 87 it was due to global panic crash, the left was all about political reasons. (thanks to the Chinese government again!) Other cases like 73,81,94,97 and 00, part of the stocks were trading at extremely high valuation. It took more than one years to hit the trough, even three years in 2000. Valuation plays a very important role in determining the time of the market to hit the bottom.

Andrew Lok, the UBS Strategist, forecasted 28,000 is the base for 2008 H.S. Index, translating to 2008E pre-exceptional PE of 18.7x, or a 26% premium to the 34-year average of 14.9x. Look at the HSI today, it is already trading near 2008 earning level. I cannot say this is a bubble but the market is already very expensive overall.

Even if you are lucky enough to get a crystal ball which can tell you when the bubble ends, will it help you much to reach financial freedom? I doubt it! Mr. Warren Buffet said when you buy a stock, you are just like running your own company. You need to know the price and value of the company. What determine the value of the company? Earnings, Earnings and Earnings!!!

Stock likes HSBC if priced at 149, it is valued at 2008P/E 10.8x which is very low. On the other hand, if we look at some insurance or property companies in China, they are all trading at very demanding valuation. Just think about if you bought YAHOO! in years 2000 (I did it!!!) and bought HSBC(I didn't do it) at the same time, what are the return? You tell me. I don't want to change my good mood.

So whether the market is in bubble or not, it really doesn't matter. The most important is the price you pay for the company and the value you get. Simple is that. Enjoy the ride of the bubble! Cheers!!!