You asked so I'll approach it like this,
It is something that in some ways takes a prepared mind to see - in some sense perhaps a gestalt exercise. After reading an article in Scientific America in 1990 written by W. Brian Arthur, it was like an ephipany of sorts but I had the econ, statistics/math background and my own skepticism of the rational, diminishing return, stable equilibrium, deterministic views and equations that the econ types were trying to force on me at the time and it just didn't make sense.. Also, one of the first things I thought after I read the article was I must buy MSFT and INTC. This approach later led me to MRK, CSCO, AOL, BRCM and CMGI to name a few.
I have a link below to the paper I refer to above. The Theory is called the Theory of Increasing Returns. Software, Bandwidth, Microprocessors high tech in general operate by this theory. People think MSFT is crazy giving away the browser or that AMZN is crazy for growing and not showing a profit right this quarter and some think DW is just plain out of control. Those people just don't get it.
You will need adobe acrobat. Click on "Positive Feedbacks in the Economy," Scientific American, Feb. 1990. at santafe.edu
Try the sequence below.
1. Read the positive Feedbacks in the Economy article. (I recommend checking out the actual article in Scientific America as there are some pictures that will clarify visualy what he is speaking about
Pay particular attention to the paragraph that starts: "In the real world, the balls might be represented by companies and their colors by the regions where they decide to settle..." Consider it in light of
Makowsky statement: "Seriously, take a look at CMGI's holdings. They are creating an online cartel. CMGI has in its family of holdings quality companies in all of the hottest sectors. Furthermore, all of these companies can leverage each other to improve their own content and capabilities. CMGI "encourages" their children to do business with each other. This is a legitimate, and in some cases fairly hefty advantage over the competition."
2. Think Theory of increasing returns
3. Reread Makowsky little article
4. Contemplate the simplicity of the title
See David.
See David Invest.
Invest David, Invest.
And perhaps we should add Win David Win
Was Makowsky talking about the theory of increasing returns on purpose, I don't know, probably not. But when I read it, that is what came into my mind and his thoughts made sense to me. He leaves lots of manuever room because it is a fuzzy kind of problem and analysis. I guess this is why value investors have been getting their clocks cleaned for at least the past ten years and refuse to buy the AOL's and CMGI's or CSCO's of the world because the PE is too high by classical standards and theory which owe their origin to the industrial revolution and concepts solidified from the 1920's to 1940's in large part.
IMHO
PS. I have been accused of being a ranter on occasion as well. ;-) |
