>If you were referring to my post, that's the first time
>I've seen the P/E ratio referred to as "technical
>analysis". Usually, it's called a fundamental ratio. It
>used to be normal to suggest that a stock's value bear
>some relation to its earnings. Not these days I guess!
well, when was PE invented? decades ago when innovation was slow, when rise and fall of companies were predictable. but these days, things are moving at speed of thought and the lifecycle of a company that you learned from textbook no hardly applies. competitions in the coming years will be so intense that the make or break of any company can be witnessed in a very short time frame.
just imagine how nuclear weapon suddenly change the pace and outcome of WW2, the net is just such weapon. so, if winning in the marketplace is like building a more powerful bomb faster, then all these high PEs are well justified because you only need a few bombs to blow up the world. (ps, I'm not sure if I am the first one to compare Internet to the bomb, if so, please credit me from now on).
another way to understand high PE is to think of the lifespan of a company being shorten. in the traditional case, you have a company that possibly last for 50 years with average PE of 20 for a total PE of 1000. now if the lifespan of this company is shorten to 5, shouldn't the PE be 200 if in each case, the company produces the same amount of goods (and profits)?
i just brought a brand new 2000 car this month. i was fairly happy with it until i thought about how the car is basically the same for the past 10 years, the so called innovations are mostly irrelevant to the overall performance of the car. the gas mileage didn't get significantly better, the seat didn't get more comfortable, i still have to horn at the slow driver in front of me. i still have to stop and ask for direction, i still have no clues where are the traffics ahead of me. so what has honda done in the past 10 years? what did honda do to deserve the $20,000 year after year? if honda wants to sell me a brand new 1990 accord for $2000. i will probably buy one for each member of my family and they will be very happy. but can you say the same about computing technology? i don't think you will be very happy if i sell you a band new 386SX with a 14 inch mono color display, 80meg hard drive, 2.4K modem, windows 3.1 for $200. and for the same $2000 that you would pay for the 386SX 10 years ago, you are now expecting a 600 Mhz Pentium III, 20,000 Meg hard drive, 19 inch flat screen monitor, 1,000K DSL modem, windows 98, along with 10X DVD and a 32Meg 3D graphics card capable of providing your every entertainment needs.
i think the market is exactly right by rewarding hi tech companies with high PE because the innovations they're producing are unprecedented.
we are living in transitional time where our way of life is still lingers in the past, we probably won't see the whole effect of the net until the past become history. but in the meantime, you can have faith in yourself and bet on the right people and the right company. i knew i was stupid when i didn't buy BEAS at the $6 IPO price. damn, i was working with Tuxedo, doing all these multi-tiered hotshit and knew craps like powerbuilder won't last. |
