Hi Dan,
I am definitely not deliberately picking on you. Just feel as strongly as you do about the same topic.
The abnormal growth rates you speak of were, are, but will no longer be fueled by availability of unprecedented liquidity, information flow, growth of same liquidity/information and then justifiably underpinned by the fateful belief in a one-way bet.
At the peak, the growth rate of the canals, railroads, and tulips were correctly valued, but only at that very fleeting moment in time, before time moved on.
Using abnormal and unsustainable growth rate expectation for valuation gives false comfort. Many evidence now indicates that when companies merely meet their growth expectation, their value gets pulverized, and when they fail to meet same, gets destroyed.
In a world free of debt, what you say would be absolutely correct, in that PEG is stable. With debt, the math of loss changes substantially.
PEG methodology is an invention of the same bunch that gave the world the Boston Chicken, and soon the Bostonian went gasping on its own nitrox bubbles, ever euphoric.
What happens on the coming day when a large publicly listed company goes bankrupt? What will CNBC be talking about to all that would listen (including just about the whole world, given vast improvements in tech since Oct 1987 and even LTCM)?
As the broader environment continue to deteriorate, grinding down the can-do spirit of the many, and as bids fail to materialize for the truly over-valued equities and under the water bonds, their correctly valued neighbors will get sold off just because they still can be sold.
12 months from now, YHOO, AOL, CSCO, JDSU, EMC, NTAP, C, GS, LEH, MDW and even MSFT will all be lower than they are today, and many techies will join the bankers in the pubs, thinking back on that sweet moment when the PEG was mathmatically correct, though the G started to change.
The relatively small biotechs (by revenue and profit measures) and handheld/notebook PC plays will not be able to stand in the way of the mass exodus for the fire escape of their bigger network, optical, and financial siblings. The weight of the market and money is not in their favor. This year's show is just an appetizer for the unthinkable ... the high profile blowup of one from amongst ICGE, CMRC, OPWV, or AMZN.
Chugs, Jay |
