I know that the real value of a stock comes from the expected dividends of the company in its matured phase of its business lifecycle.
I'm wondering why is it that companies with such low earnings per share and high price earnings ratio are being bought! Dramatic long-term optimism?
Another question. If stocks get saturated with uninformed buyers, then they'll increase in price and exceed the true value of the stock. Do crashes happen because people see their actual dividend rate of return is really low, then they start selling at the super-inflated prices, then people stop buying at the insane prices? If this logic works, then how can we as individual investors protect ourselves?
Even index funds are not protected against this phenomena, because you might be buying when the whole stockmarket is overvalued. Even if just a slim majority of stocks are overvalued the average index investor will stand to risk a negative rate of return.
Submitted June 30, 2017 at 09:20PM by 101trajectory http://ift.tt/2u8z1GE
