SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Technology Stocks : Wind River going up, up, up!
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: kris hatfield who wrote (1117)5/23/1997 12:08:00 AM
From: Jason Cogan   of 10309
 
Kris:

<<Although trailing PE on a growth stock like WIND is meaningless
to me." why is this so?>>

As a former bond trader, maybe I can explain why a trailing PE is meaningless. In all stocks, you're not paying for trailing earnings. Buying based on trailing earnings is like driving a car while looking through the rear view mirror. It says nothing about the road in front of you.

The only way to value stocks is precisely the way Warren Buffet (and Allen Benn, and myself, and countless others) value stocks. The investor must calculate future free cash flow (sustainable earnings after necessary expenditures) and discount those earnings back by an appropriate discount rate (I use broker call rate, since that's what I get charged to margin stocks, but that's another discussion).

In other words, a stock is just like a bond, except that in the stock's case, the future coupons are not known. As Warren Buffet has said "it's my job to fill in those coupons." The only way to do this is to project forward, estimating what a company will earn in future years. What the company made yesterday is largely irrelevant. It might give you a starting point for calculations, but that's about it. What matters is the ultimate earnings. That's why the trailing PE is meaningless. A stock will always be rich or cheap based on it's future cash flow, not it's past.

Hope this helps.

Jason Cogan
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News