Dave - "What goes up must come down" is neither a law of physics or
a law of investing. A rocket can go "up" and continue enlarging the
distance between itself and earth. With a bunch of qualifiers, an
object which is heavier than air, if launched by some kind of a toss
or propelled, will return to the earth. So. In investing if there
were no such things as growth stocks I might be tempted to agree
with you. But there are growth stocks. Intel today is worth more
than Intel three years ago because it is bringing in more gross
revenue and greater profits, both by a substantial amount. Intel
will go down like a stone if it does not continue not only to make
money but to continue to grow revenues and particularly profits. BUT
if revenues and profits are significantly greater a year from today,
it is very hard for me to see a reason for the stock to return to the
price level it was at one month ago, one year ago, one decade ago or
any other level it enjoyed in the past. You could have made a large
fortune by starting to invest in IBM in 1950 (or Xerox, Texas
Instruments, etc). You would have done pretty poorly if you invested
in General Motors, Ford, US Steel and other cyclicals.
The key is growth. Note that when IBM, Xerox and TI stopped growing the
ride ended. Then stock prices start to resemble a random walk with
advances as likely as declines. With a growth stock, there are both
advances and declines but advances are stronger. If
you believe Intel is a cyclical there is a case to be made for your
statement. I personally see fairly strong growth in 1997 and beyond,
so I see a good reason to believe that the bias is upward.
Having said all that, Intel has moved up fairly strongly recently. It
is having a breather and might well move back down into the 70's on a
purely technical basis. But as a long term investor I can only hope
that some set of circumstances drives the price down even further so
I can pick up some more at bargain prices. Amazingly enough this
happens fairly frequently due to the foolish analysts who really
don't do their homework, understand their covered industries and
companies and who don't seem to suffer any penalty when they are
dead wrong. Joe Granville and Kurlak come to mind. Garzarelli
might fall into the same category - we'll see.
There is a whole school of investing that says that the only thing of
investing interest is what goes up. These are technicians and momentum
players. What goes up could be considerably more valuable a year from
today.
Good investing to all,
Burt |
