TB, i wrote a detailed reply to this and it got unfortunately squidded...so i'll keep it short: i agree that in the very long term, stock prices will follow earnings growth and growth potential. however, there were many instances in the past when the market couldn't make any headway, or even fell sharply in spite of record earnings due to rising rates. conversely, the market often rose strongly during times when earnings were bad but rates were falling. if the bond yield were to rise to e.g. 7% in the next few weeks, the market would surely go lower in spite of stellar earnings.
as to the average investor, if he were indeed savvy, he would know that we are in a bubble and get out. instead, according to polls, he expects the market to return 23% per annum on average for the next ten years. the buy and hold mantra disseminated by WS has been fully accepted and the experience of the past few years is regarded as the norm. that's not savvy, it is foolish. when a stock with a p/e of 500 goes to a p/e of 600 in a few weeks time, fundamentals have nothing to do with it. this is a liquidity driven bubble that has left fundamentals in the dust long ago.
regards,
hb |
