When will Markets Correct

When will Markets Correct

1) Price to Earning is the method to buy equity

2) People will buy at PE 5 because they hope to recoup their Investment in 5 years

3) 5 PE can be 10 PE if they expect the company to grow rapidly maybe twice as fast. So in two years valuation is fair at 5

4) Likewise ten years AVG PE of NIFTY is 19 which for a fast growing group of companies means your likelihood of recouping your investment may be say 6 years or so

5) Now this theory isn’t self perpetuating because human life itself is limited and so is our time on planet earth before we embark to the land of Gods

6) Markets are getting expensive and there are theories emerging like zero interest rates that support this perpetual Fairy Tale theory.NIFTY is at 40 and has currently priced in next 2 years earnings

7) If NIFTY reaches 100 it would perhaps price into itself the next 10 to 15 years earnings

8) What does this mean? It means that you as an investor would have to wait for 10 to 15 years to just reach 10 years average valuation. Profits will start only thereafter

9) So clearly as interest rates tend to zero and if the Fairy Tale theory is to be believed Then we can also say that Returns (the Holy Grail of wellness ) too will tend to zero

10) So for unbridled PE growth we must understand that if you are an investor of age 50, you may have to wait for 8, 10, 15 years to just get your purchase valuation into a fair zone of 10 years average

11) The Returns journey for you the 50 years old investor will thus only start after your 65th Birthday

12) Else the only hope which I feel is plausible is a market correction and rebooting of PE to it’s average

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