Stock prices - Ferrari Life
 
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post #1 of 10 Old 03-07-2011, 08:49 AM Thread Starter
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Stock prices


For the life of me I simply cannot understand stock prices. To me when I see P/E ratios up near 20 it seems like buying that stock would be like giving loan to a crack head because there no way the company could possibly ever earn enough to have the investment actually ever repay itself much less earn a profitÖ.for some reason though that I fail to understand no one seems to care.

The company increases sales so the investors now say the new value of the company is 20 times the new earnings number and bam look at all the money they madeÖ..20 times the actual gain the company saw???

The dow was at 6500 I was thinking the market had come to its senses and was back in line with historical P/E ratiosÖ..now itís back over 1200 and all the talk is that itís not a bubble, donít be scared this is normal and where prices should be.

I donít get itÖ..I guess I'm just not very good at math
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post #2 of 10 Old 03-07-2011, 09:48 AM
 
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Not sure I see the P/E issue - a bond paying 5% interest could be said to have a 20 P/E, not very good for a risk item, but a current market rate.

You are good at math, stock prices are only maybe 10% math, say 90% psychology ? IMO

Kinda funny to post a logical/math based question about value on a Ferrari forum anyway ...can't a $15K Hyundai do almost as much as one of these... ?
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post #3 of 10 Old 03-07-2011, 10:49 AM Thread Starter
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Not sure I see the P/E issue - a bond paying 5% interest could be said to have a 20 P/E, not very good for a risk item, but a current market rate.

You are good at math, stock prices are only maybe 10% math, say 90% psychology ? IMO

Kinda funny to post a logical/math based question about value on a Ferrari forum anyway ...can't a $15K Hyundai do almost as much as one of these... ?

A bond is a bit different in that they are pretty low risk and at the end of the term you are handed 105% of the investment (on a 5% rate bond).

With a stock though you are generally not handed anything these days other than the hope that someone else will want the paper more than you do and for more than you paid....and hope is your only recourse. That wasn't really the case 30 years ago.

As for cars, I'm with you sort of. For getting to and from work on a drive that is impossible to enjoy, cheaper is better. But for Funday drives.....cheaper is general not better.
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post #4 of 10 Old 03-07-2011, 02:51 PM
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the market is being propped up mainly by the dollar shrinking. The stocks aren't worth more, the dollar is worth less. It is also a bubble and my take is you have to be a fool to be in it right now. check back with me next year.... food is up too. same food.



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post #5 of 10 Old 03-07-2011, 02:58 PM
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Time to buy railroad stocks with oil over $100 per barrel!

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post #6 of 10 Old 03-07-2011, 03:14 PM
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Originally Posted by wetpet View Post
the market is being propped up mainly by the dollar shrinking. The stocks aren't worth more, the dollar is worth less.
You say that like those two things don't mean exactly the same.
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post #7 of 10 Old 03-07-2011, 03:48 PM
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post #8 of 10 Old 03-08-2011, 05:49 PM
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The idea behind the P/E ratios is the projected increase in earnings growth of the companies. If you don't think the earnings are going to grow than no reason to buy with a high P/E ratio

Is still believe our economy runs on cheap oil. I would only buy stock in companies that I think will benefit from high oil prices right now or at least stay away from ones that are going to be killed by the high crude prices

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post #9 of 10 Old 03-10-2011, 02:24 PM
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I put all my faith in Vanguard and the hope that over the next 20 - 30 years the world does not end and the total market on average will pay its 7 - 9%. I'm not savvy enough to take the gamble and buy individual stocks.
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post #10 of 10 Old 03-10-2011, 04:10 PM
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