bubble index

the people who follow the stock market are the same peoople who follow the weather forecast - john maynard keynes, british economist

if you ever want to compare two investements, all you need to know is the bubble ratio, aka the hype factor, or aka price-to-earning ratio:

bubble ratio = p/e where

p - price
e - earnings per share

that is, it is the number of dollars you have to put up to get one dollar back on your investment

so what?

let us a look at the two examples. at the time of writing this, google has a bubble ratio of about 95 and microsoft of about 23

it has a couple implications including:

1. you invest in google today, you have to wait for 95 years to get your investment back (since for every 95 dollars you put up, you get an expected one dollar back each year). it is a long-time to wait, assuming that you are not from greek mythology (ie, a greek god).

2. today google, for example, is a worse investment than micrsoft

3. the best investments are the companies with low p/e ratios. at least this is what the market thinks. and market is all we know

references

yahoo sector browser