Good post,SH.
The doomsters promote various fallacies. One is that since stock prices are at a record high in comparison to the GNP this means that they have to go down a lot. The truth is that in 1929, their favorite comparison year of the fallacy, a far smaller fraction of the economy took place inside of public companies. A far smaller fraction of the population worked in publicly traded companies. Despite the famous Montgomery Ward and Sears, retail was mainly mom and pop. Hotel chains, restaurant chains etc. were in their very early stages. Even manufacturing went on, to a much greater extent than now, in many small companies. Economy of scale was not great. Unfortunately I don't have exact figures on the relative fractions of the economy which was carried out in public companies, 1929 versus 2000. But the ratio is large.
Another fallacy is that the rate of technological change is exaggerated by us tech stock investors. Back in the 1920's, the era of the beginning of commercial radio and the popularization of the automobile, the increase rate of the GNP was faster than now. Hey, you could involve the average person in the car boom, both as employee and end customer. The technology businesses of today typically hire highly educated people and sell to highly educated people. Only certain products, e.g. cell phones, are sold to the man on the street. For example, alone of the major countries of the world, the U.S. hasn't switched to the metric system. That's because it would involve the average person, who is definitely undereducated for the times. E-books, for example could become a rapid growth area, but not for picture oriented folks who simply aren't readers. The products of JDSU, CSCO, ORCL are not, as far as I know, bought by the man on the street. So there is intense activity and rapid growth in technology but it is not multiplying the work force as fast as it is growing. More educated people would increase the growth rate, but they are simply lacking and the great tendency now is for our favorite gorillas to become world wide companies, in search not only of markets but also of productive ability, which won't be found in people with average education.
Finally, I continue to be amazed at the growth rates we are finding in, for example, NTAP, SEBL, VRTS, etc. Way back when, 25% a year was simply astounding. Why shouldn't the P/E's be much higher now? Of course the higher P/E brings more volatility. My personal response to the volatility is to devote a portion of the portfolio to calls, way over the market and puts way under the market. Cash dividends stabilize prices, and slow the growth. We probably don't want to pay the price for decreased volatility. The volatility comes with the territory of rapid growth. |
