Quote from duke’s above post;
“Now you say the market is undervalued. Is it?”
So you say it is overvalued. That means your advice is to sell even tomorrow at current price level at any loss coz your prediction is ASI would come further down(Coz you say it is overvalued).On what grounds you say market is overvalued.
It seems , You have based your comment on one sentence /question of the’ post ( of Duke ). But it ‘s clear to any careful reader, that the writer’s main argument is not that. I think he raises some valid issues for anybody to think about.
Nevertheless, in your comment , You also have raised some important issues about valuations of companies / Markets.
“ When the ASI was 7800 PE of the bank & Finance sector was around 14-15. But still many analysts said that a good price to buy. Nobody said that is wrong.”
It seems you also agree with the above opinion of analysts. I’m not sure what ‘s the basis of above statement. But we know it’s only an opinion of some analysts. Probably nobody had said it’s wrong. But does it mean, it’s RIGHT , and everybody have to accept it ?
“ Now PE of most of the Bank and Finance Companies have come down to single digit. Even the PE of companies come under motor sector is below 7 (DIMO is around 3.6, COLO, UML are below 7) Many plantation companies are also record now single digit PE. So you say market is overvalued. What is the PE value you expect to say market is fair valued. “
You are asking the right question. This over value, under value , fair value are relative terms, and you will find various people (such as analysts, researchers, investors, traders, forum members ) , use these words and fix PE values based on their knowledge, experience, expectations , interests etc. But is there a definite benchmark value of PE as fair vale ?
Some compare PE of CSE with World markets ( NYSE. FTSE, ), Asian markets, Indian market , emerging markets etc. Bt when you take into account the unique characteristics of CSE, like market size, types of companies, types of investors, country economy, future prospects ......... is CSE comparable to any other market ?
“Don’t think our small investors are that fools pl. This is not the time to sell our shares. We know any time market will start a bull run.”
As implied ,probably you may be of the view, based on looking at the past Company /sector / market PE. This is one way of arriving at a judgment .
There are other approaches also. Rather than looking at the past , someone can look at the future.
He may decide based on future economic outlook of the world, Europe Asia, Sri Lankan economy, political climate, , economic growth prospects, company earnings prospects, wisdom of policy makers, capability of entrepreneurs, integrity / capability of regulators etc. If he arrive at a entirely different conclusion than yours , can we say he is a fool ?