t36....in my real life I work on some very large Pension funds. We utilize dozens of professional and very talented money managers of all persuasions and styles. Large cap, small cap, mid cap, growth, value, international, domestic...etc. etc.
Every year I hear the same mantra from at least some of them. "Last year was the year for xxxxxx, so this year we believe our style is set to shine". Or, the cousin to that mantra..."Because xxxxx did so well over the past two years, it can't continue to go up. Modern Portfolio theory requires reversion to the mean, so this year YYYYYY will do well and XXXX will not".
Finally one year I got exasperated and asked one of the managers "When all is said and done, doesn't the market respect earnings growth, and demonstrated potential future earnings growth, regardless of the size of the company, its sector or its nation of incorporation? Don't earnings mean everything?" After their effort to give me reasons why earnings were only one part of the mix intelligent investors needed to look at, we then moved on to the potential for good companies to maintain their earnings growth......things like barriers to entry for their competitors, marketplace demands for their products or services, the enhancements to productivity created by the products of these companies, which fuel demand for them in any efficient market system.
Anyway, I realized that I firmly believed in the lessons of our little thread here, and that in dealing with professional money managers, some of whom are brilliant technicians or marketers, but who cannot, or will not, accept the free market rules the GG has convinced me are real, I simply decided to follow the course I was comfortable with for my personal investing. Of course, I still monitor those managers and quietly note my own performance vs. their published numbers. As you might guess, I am smiling.
More directly on your question, I can show you published reports from 1989 saying Intel and Microsoft could not continue to grow at their previous pace. Ditto in 1994 (a tough market year) for Cisco. For me it is not difficult to pencil out very reasonable 2001 earnings forecasts for QCOM, JDSU and CSCO, discount 10% and then feel pretty good about the resulting P/E.
JMHO |
