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Pastimes : Ask Mohan about the Market
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To: Zeev Hed who wrote (13281)1/21/1998 6:29:00 AM
From: Jack Clarke  Read Replies (2) of 18056
 
Zeev,

In previous posts you have blown away one of my tenets of the "overvalued market", the low dividend yield, by giving the currently popular explanation that the dividends are plowed back into stock purchases, driving up the price and avoiding tax consequences. Fair enough, I suppose, although I still question stock price expansion alone as a store of value, since this ultimately only works when you sell the equity, whereas dividends one may spend or invest elsewhere. But I'll grant you the point for sake of my current argument.

Now, please give a similar explanation for the abysmally high price to book ratio? If you look at the past, it has never been a good time to buy stocks when you are paying more than twice their book value. Now people are paying four or five times the company's book value. What is the "new era" explanation for this phenomenon?

I always value your opinion.

Jack
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