Being smart with $$ - Are Market Bubbles Obvious

Don't stock market bubbles seem so obvious after the fact? Many of us pat ourselves on the back saying we knew it was coming. That's not to say we didn't participate in the upside and take losses on the downside. A few weeks ago I sat with a fellow financial advisor who said bubbles are easy to spot. I disagreed and posed this question: is Amazon.com at bubble levels? At $1000 per share it has nearly tripled over the past three years. It has a P/E ratio of 250 and a forward P/E ratio of 140 (approximately). But it is a great company and it seems like every analyst on CNBC loves it. And no matter how high the stock price goes they raise their target to a new yet higher level.  Perhaps they are right and we will only see the stock continue to skyrocket. But if it loses half its value, how many analysts will swear it was an obvious bubble ready to burst?

Larry Pike, CFA

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