Reality Check on Mr. Market

Since I posted on the expensiveness of the STI last year, lets do a reality check after 2 months, with the STI index reaching historic highs of 3253 and above.

Reality Check No. 1: STI PE Ratio - Inching up to be slightly expensive
Basing on the derived previous earnings index of 199.7, the current PE ratio we are deriving is about 16.2, an increase in 1 from december 06. This translates to an earnings yield of 6.1%,a drop of 0.5% from my previus post. The PE ratio has just inched from 15 to 16,1 step closer to the risk free yield of 5% (or PE of 20)

Reality Check No. 2: Tom Dick and Hary Joins in the stock market

When we have students, aunties and everyone throwing caution to the wind, thats a good indicator of how much irrational exuberance is in the market. If you have read this article in the Sunday times, you know what I mean.

Reality Check No. 3: Long Queues for Property Launches, Ridiculous price

As a norm, the property market is the last to boom in a bull market. Reason is that as wages and bonuses rise, stock markets rise, people are buoyed with a sense of optimism (may be false or real), and what is the last big ticket item you would want to plough your money into? A piece of your dream property, be it a condominium, bungalow or sea front property. We have been reading news of long queues , new launches transacted at ridiculous prices (imagine a square feet in excess of $1500!). If you recall, in 1996/1997, the property market was peaking just before the crash came, will we have a same situation this time?

All being said, there is still some scope for investing in the market, as it always pays to be in the market, as the most rises came only in 10% of the time, miss this periods and your returns becomes average. I am in favour of the approach of selling some shares each time it hits a new high to lock in some profits and I do apply this approach. As the STI approaches the next 100pts @ 3300, I will lock in some more profits. Meanwhile, MAKE HAY WHILE THE SUN SHINES.