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Technology Stocks : America On-Line: will it survive ...?
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To: J.S. who wrote (8356)2/28/1998 11:27:00 AM
From: steve lipson  Read Replies (1) of 13594
 
>>What is probably the case is that these bond holders made out proportionally better relative to other bondholders then the stockholders did to the corresponding stockholders.<<

I agree with you that bond and stock investments are measured against two entirely different benchmarks and not meant to be comparable at all.

I think you are being too generous to the reporter, because nowhere in that overwrought, overdramatized story is there any indication that he grasps the distinction.

The only authority he seems to quote is James "I've been bearish and dead wrong since 1993" Grant. He says that Warren Buffett wouldn't buy a solid company like Coke with a P/E as high as 40. Yet he seems unaware that George Soros loaded up on AOL during the second half of last year despite its triple-digit P/E and has made 50 percent to 100 percent on his various buys in less than a year. So I think it's fairly outrageous to contend there's something fishy about AOL stock because one smart investor probably wouldn't touch it, when we know another smart investor would and did.

As to that relative performance of AOL junk bonds vs. stock, AOL's rise was more than five times greater than the S&P for all of '97. The First Boston high yield index (according to a Morningstar screen) returned 12.63 percent in 97, so the junk bonds 69 percent annualized gain is also more than five times better than the benchmark. Can't say that it means anything, but I was curious so thought I would share the info.
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