ardethan: Wow, we missed. Let me try slowly.
Yikes. Yes, speaking slowly may help. I appreciate your patience!
It is my opinion that calculating the aggregate P/E of the market (total market cap / total earnings) is uninteresting for two reasons. One, for the reasons that I stated, the presence of companies with negative earnings will make the P/E for the market as a whole higher than for the average profitable company. Two, I don't buy indexes; I attempt to buy stocks at reasonable valuations with great growth prospects. So even if aggregate P/E were an adequate measure of overall valuation, I'd still be uninterested, because I don't really care about overall valuation. For instance, Siebel has a P/FCF ratio of 50. Whether the P/FCF of the nasdaq is 25 or 100 doesn't affect whether or not Siebel is worth owning at this price.
If you agree with the above, that's great. If you disagree, that's fine too, although I have to admit I don't really understand your reasoning.
I believe that I understand your point with regard to telecom--rampant speculation in various telecom segments, and the ensuing crash, have made it much harder for investment to proceed, which harms both good and bad companies. I frankly don't know enough about history and business dynamics to know if this is true--it is possible, for instance, that by weakening the weak companies faster, this makes it even easier for the strong ones (the Gorillas & Kings) to consolidate power. Moreover, I don't currently invest in telecom (the only telecom company I'd consider at the moment are Q and JDSU, and I don't own either), so the fact that the build-out may be delayed or even cancelled isn't that big a deal to me. The companies in which I do invest (RMBS, MSFT now; SEBL, ITWO, AGIL, NTAP potentially) don't seem to face a major infrastructure shortage in their industries.
I honestly don't know what the following means:
Now, when the whole is not equal to the sum of the parts, we have a problem. When it's bigger it's the good kind of problem to have. This is the kind of problem we hoped for when Cisco purchased Monterey.
But when the whole is smaller, well surprise surprise. Kind of like Nortel shareholders are feeling right now. If there isn't enough value to go around, then someone gets short changed.
I assume that by "whole > sum of parts" vis a vis Cisco & Monterey, you're talking about synergy and the like. In what way was the whole < the sum of the parts WRT Nortel?
ardethan |
