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[quote=Anonymous]Lots of tools to answer this issue. None I can definitively give you an answer.

In theory, the value of a stock is the firm’s per share discounted earnings or discounted cash flow for the future. You are basically predicting future earnings or cash flow, using a discount rate and valuing it in today’s dollars. You can also look to a stock’s intrinsic value (what are the assets of the dominant net of liabilities).  These are just two examples of stock valuation. But the excess of a stock price relative to its discounted earnings/cash flow or over its intrinsic value is the “premium” a stock is worth.   Those premiums are at relative all time highs right now.

During times of distress you can see those premiums narrow, or, in limited cases the stock was worth less than its intrinsic value. In that instance, corporate raiders take over a company and sell off its assets for more than they paid for the stocks.

A great handy tool to use is price to earnings. Generally speaking, on a p/e basis, the S&P500 is elevated right now, but not at historic or all time highs.

No exact science to any of this stuff, but if you can master enough valuation tools you can be directionally right about what is happening. [/quote]

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