Thursday, November 01, 2007

Tea and Tulips

A while ago, I saw this article on $13,000 Puer Tea and certain tea prices multiplying seven times over three years in China. (Apparently, you can see the full article without subscribing if you click the same link from Google News.) Then I came across this stock chart, NASDAQ:JRJC. I've never seen such a nice reverse L-shaped stock price graph. I also read that there's a shortage of domestic help because so many maids are day-trading stocks instead. The China Finance Online stock, I would consider to be a double bubble, because it probably makes money off of bubbles and the number of people day-trading stocks.

Asia's wealthiest businessman, Li Ka-Shing, has warned of a Chinese stock bubble. But this bubble has the potential to fuel itself for quite some time, just by the number of new people entering stock trading and the law of supply and demand on prices. This has the potential to be very bad, the longer it's drawn out.

China Equities Boast World-Beating Market Caps

This market capitalization inflation is “a good illustration of just how far Chinese stocks have run up.” He calculated that the 12-month forward P/E for the MSCI China index has reached 23.1, compared to a 10-year average of 13.0.

A euphoria matching the scale of China’s is taking place in India, where stocks are trading at 21.5 times earnings, versus a 10-year average of 13.3 times.

A Random Walk Down Wall Street has nice little summaries of major economic bubbles in history, including the great tulip mania. Puer tea seems just slightly more valuable than tulips since you can drink it.

This book is all about how you can't beat the market. I would agree that most people cannot time the market or beat the market. But the world's richest businessmen beat the market all the time. They know when to get in and when to get out. That's how they got so rich. Listen to the rich people.