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bruceb@xxxxxxxxxxxxx wrote:
> This is why all the talk about the stock market being "overvalued" is, with
> all due respect, meaningless. Overvalued compared to what?
Exactly. The only real value of something is what it can be sold for at any
particular time. We can intelligently speculate on the likelihood of value
increasing or declining, but we must remember that this will be a product of
future demand, and not so much "intrinsic" value. The current long-term bull
trend has much more to do with increasing demand generally than with business
conditions - in fact, it wouldn't be a stretch at all to claim that there is no
essential connection whatsoever between a stock's value and its underlying
business circumstances. Of course, investors will tend to gravitate to stocks
with superior earnings potential, but this is merely a chosen criteria of
differentiation. While macro economic conditions do play a role in determining
the amount of aggregate funds available for investment, therefore having an
impact, attitudes and willingness among potential investors is even more
important to consider. This alone could cause markets to keep rising despite
declining economic conditions, whereby investors keep pumping new money into the
markets. As long as aggregate market capitalization keeps rising, indexes will
have to follow, and the increasing reliance by the public, both in magnitude and
scope, on relying on equities for future income streams, will help to perpetuate
this trend. While we may see relatively short term dips from time to time,
there really isn't any good reason why the equity market cannot continue its
current up trend for quite some time, barring a significant macro economic
downturn.
Regards,
A.J.
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