How to spot a bubble?

What is a bubble anyway? The rise of price or business activity that doesn't reflect the real demand?

We need to look at chart.

Here are US Housing Price Index (US housing bubble) and the Baltic Dry Index (Pre-Olympic Bubble):

Do they look similar? Now you should be able to check out the stock with such potential.

The common mindset of bubble is that the sky will drop money. When everyone is making money, others will follow and forgot about one basic rule of supply and demand.

Money doesn't fall from the sky. You can sell a rare item for a high price. But if it is rare, the supply is low. If the supply is low, your high price is justified.

If the price is high while the supply is also high, just like the US housing supply and shipments to and fro China, something is wrong and a potential bubble will be formed.

For stock market, PE is to decide whether the price is justified or not. Consistency in PE or PEG is also important to check if the earnings is not manipulated. But most people think that share prices can go up a lot even if the company is not making money. But where do the money come from? During IPO, shareholders contributed fund for the company to do business. The money you bank in to CDS is real money right? Is it from the sky? The company then use your money to buy things to do business. The money is real right? Then the business start making money and the money is real right? How do you think you can benefit from the earnings from the company?

It's all about profit. And it's also about growth. Just like your shop. If your shop is making money, you need to share it with your business partner. A listed company is nothing different. They are also not allowed to print their own money and distribute as dividend. Hope young people these days know where the money is actually from and the sky doesn't drop money. Just like when you buy a share you need to pay real money from your bank account and also the person who sell you the share will get the real money from you.

Sorry for being carried away. This is a very common mistake in KLSE where people have a very shallow knowledge about money. They still think money can be manipuated to grow not by real business profit. Yes, it is able to grow but not for too long. When market is bad, professional will evaluate your company business condition to judge the value of your stock. If it is cheap, people will buy or hold, and the share price will not drop much.