Taiwan Semiconductor (NYSE: TSM) Message Board

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Technology Stocks : Taiwan Semiconductor (NYSE: TSM)

TSM 330.60

+1.5%

3:59 PM EST

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To: Artslaw who wrote (510)	6/2/1999 7:23:00 PM
From: Sun Tzu	Read Replies (1) of 684

>> your theory leaves out any reference to TSM's growth The problem with the growth argument is that the premium is just too large. By definition, 92% of the stocks should have returns within two standard deviations of the broad index, of which about half return above the mean and the rest below the mean. Don't quote me on this, but I think the standard deviation for the market is 7%. Let's assume that the bull market will not come to an end and that it continues to deliver its trend line returns of ~20% per annum (which by no means is a given). Less than 1% of stocks perform 4 standard deviations above the market average. Let's say TSM is one of them. Over the next 6 and 12 months the value of the stock (not the ADR) would rise by 24% and 48% respectively. This is still does not justify paying the 40% premium. Let's say that the ADR premium is reduced to 10% (still high but more reasonable) and there are no market troubles and TSM outperforms 99% of the stocks out there and the market returns 20% etc. etc. Then betting on TSM will take you from the current 27 to 33, i.e a 20% return. Compared to the assumed 20% for the general market. Is the extra 2% worth the one in a hundred shot? If you are in it for the short run, watch the block trades and get out before the next wave of ADR conversion hits the market. good luck, Sun Tzu P.S. If you liked "my" book, you may also like my thread. It is called "The Art of Investing". Somehow the name sounded appropriate <G>

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