ARC (ALRC)-A revamped and transformed web-centric IT company Message Board

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Technology Stocks : ARC (ALRC)-A revamped and transformed web-centric IT company

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To: shawn_f who wrote (17)	6/7/2000 7:22:00 PM
From: J.Y. Wang	Read Replies (1) of 87

One of the fundamental psychological hurdles you have to get over playing this market is the assessment of the valuation of the stock at the current price. For example, if stock ABC is trading at $155 with a P/E of 350 and a P/R of 95, the question to ask is not, "Is $155 a good price for ABC?" but "Is ABC going to go higher?" *You have to assume that ABC at 155 is the "right" valuation and start your analysis from there*. The traditional view is to value stocks by the assets they represent, be it with P/E, P/R, P/E/G, discounted cash flow, or whatever analsys. That's fine and dandy until one realizes that almost all assets in this world are valued by the law that trumps all other laws: supply and demand. If you think about it, supply and demand is the only law or rule that really matters. Valuation analysis is useful only a means of helping to determine demand -- demand is the end that really matters. The reason you assume the current price of the stock is the "right" price is because in a free market where prices are determined by supply and demand, the current price of almost anything is the "right" price. Tech stocks had the monstrous run because there was an equally monstrous demand which could not be satisfied by the supply. Throw in there some mob mentality, some short squeezes of biblical proportions, and you have an obscene run in the tech stocks. Where to now? As long as the economy is strong, I don't see a return to historical valuations. There is too much optimism and too much greed. Everyone who wants to be employed is employed. The baby boomers are in their peak earning years. Many 20-somethings are making $60-100k+/year. There is too much money flying around for the markets to sag that much. Only when the economy weakens and more people start to wonder where their next paycheck will come from will the markets start approaching historic valuations. That is my prediction.

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