Stock Market Bubble: Facebook In 2016, IBM in 1961

If you have to be human and get a little bit caught up in a stock market that has been on a very steady advance for 6+ years, find a trendy stock that at least bears some kind of relationship between the price you pay and the current earnings that support part of the valuation.

Paying $735 for Alphabet (GOOG) stock may be overpaying, but for someone with a 5+ year time horizon, it isn’t stupid. It makes $21 billion in profits and has a $500 billion market cap. That’s 24x earnings. You won’t get killed on your investment doing something like that. The realistic case scenario is that the business grows profits by around 13% per year, sees the P/E ratio come down in the range of 20, and you get something close to 11% annual returns for the next five years. Your protection is the fact that there is already a whole lot of profits being generated right now, and those $21 billion profits have been and continue to grow at a very fast pace.

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