Amid bullish SET talk, a note of caution

Because the price-to-earnings ratio (P/E) of the whole SET is still not too high, equity is still recommended.

However, one has to take that statement with care because the ratio was drawn from the average of all the SET companies. There has been a surge in the multiples of P/E among medium-sized listed companies. Although the average P/E is at 18, for the medium-sized stocks as reflected in the MAI index (Market for Alternative Investment), the P/E is now at 32. That is, you are paying for a company’s stock at 32 times its yearly profit. That is incredible but already in existence in part of the current market – the bubble in one section is already there.

It can only be rational if high growth of yearly profits in the future is almost assured, like some retail companies, otherwise for those innocents who are not near to the inside (your market man is not your inside), stay away from those high-priced shares with no prospect of high growth.

If you are lured by high rises, high paper gains now, you will be too slow to liquidate when the time comes and can be left holding the losses while others who have taken quick action profit from your poor judgement and slow action.

For certain, there will be many who will be carrying these overpriced stocks for years to come when reality hits that they are unjustified high P/E stocks.

Strangely enough, these losses will never be known because the punters are too ashamed to eventually admit their lapses of judgement.

Songdej Praditsmanont

Bangkok