Toby,
"Yes, it's overpriced. But what will it cost in five years? "
I reckon this stock will grow and split and grow and split many times over the next ten or more years. But, NOBODY knows this. NO one can project that far. Buffett does not. He is always re-evaluating his companies. Forward-looking projections are only good for 6 or 12 months, in my opinion. I watch my companies quarterly reports for trends. I like Andy Grove's book title: Only the paranoid survive.
Again, IMHO: The "but what will it cost in five years" logic is dangerous for other reasons. How many people have the capacity to hold while the stock they paid 118.00 (JDS in CDN funds) for drops to 100, then to 90, then to 85 then back up to 87 then to 80 then to 82 then to 74 then to 76 then to.... Take this process down to a more "normal" p/e range of, for this company, probably between 25 and 35 over the next five years. The killer price drop I described above is just the way these bubble stocks go. It is just the way any bear market goes: sharp drops followed by failed rallies....on and on and on. It is relentless! And what's worse is that the poor guy who holds on through the whole process jumps ship in the last big blow out sell off that, ironically, signals the bottom. Then, the smart money--those who didn't buy at the top and who didn't hold through the down market--jumps back in and etc...
There are others who, through disciplined investing principles, buy only when a company like this is fairly or better valued and they hold for the long run and don't care about the price drops. They don't have to because they bought in at such a low level that their initial investment is not at risk. They are the true long term investors and they sleep like babies. In peace. The person who says to him/herself, "I am a long term investor and valuation does not matter because the stock is going up and up and up--I'll buy at an inflated p/e," gets overwhelmed by emotion. They sell when the stock really takes a serious tumble. It's human emotion. It's how the markets have always worked.
So, if you like JDS Uniphase, then wait. Have patience. It WILL drop down to more realistic levels. It will be at more realistic levels sometime in the next two years (Maybe much sooner. Real soon if we get a serious market correction or bear). Just wait. If you really do believe in the concept that this is a gorilla company then it will be around a long time and you can afford to wait. Unless, you think you have to make the quick buck or something. If you wanted to buy a pair of pants, would you get into the store when pants were on sale for, say, 20 or 25 dollars (which is what a lot of use paid for JDS last Fall). Or would you rush on down in response to the advert that said, "We've just upped price of pants to 118.00 from 114.00 yesterday. So come on in to buy!" No. You'd wait until pants were on sale again.
Least I would. Actually, I will. Unless the fundamentals of the business and this company's management changes, I will be like a pig at a trough when this company is properly priced again. Snort!
Ciao,
David Todtman |
