Neil,
You're exactly right about all those questions. Before you can get the right answers, ya gotta ask the right questions and you're doing that.
Mike, you have said that SEBL is coming down to the correct valuation stage.I haven't seen many remarks like that very often or maybe I've been missing things.
No, you haven't been missing anything, at least not in my case. The stocks we've been following have been so high for so long that there hasn't been any justification in my mind to say that about Siebel or any of them. I did write about SanDisk that I was lucky enough to find it reasonably valued (though probably not fairly valued) at the time that I needed to replace my Citrix position. I've also written often that I have no idea what the fair value of Gemstar is in this wacky post-merger stage. I still have no idea.
If I can make a suggestion -- not just for you but for everyone who isn't steeped in valuation -- go over to the Fool's website. Somewhere over there they've got an entire section devoted to valuation, a terrific selection of pieces they've written that show many, many approaches to valuation.
Learning valuation takes a lot of work. That's the biggest obstacle. But it isn't rocket science. There's not a thing anyone has to do other than add, subtract, multiply and divide. The more esoteric calcuations are built into the Fool's Web-based valuation tools so all you have to do is fill in the blanks and click on "calculate." The other valuations can be run on a $5 calculator. Literally!
There is one exception -- the discounted cash flow (DCF) analysis which by the way is at the core of Moore's valuation thesis. But our own John DelVecchio who also happens to be on the Fool's staff will soon present a DCF spreadsheet that -- voila! -- all we have to do is fill in the blanks. So put the pressure on John! :)
Once you get a feel for traditional valuation metrics, you'll gradually get a feeling about how to tweek or adjust them to accomodate the premium that the market will nearly inevitably apply to the leading high-growth companies we most often discuss here.
I don't want to appear crude or insensitive, but I've written often that people wouldn't buy an apple without knowing its approximate value. They'll spend weeks finding the right refrigerator or a car. And they wouldn't think of buying that refrigerator or car unless they were absolutely convinced that they weren't overpaying by a magnitude of 50%. But too many people in this thread don't hesitate to buy stocks that affect their life savings and their children's education without having an opinion about whether or not they paid twice as much for it as they should have.
Even after learning everything there is to learn about valuation, it's still probable that we'll buy a stock at a much higher price than we could have bought it. I doubt that I've ever paid for a stock that I couldn't have picked up at least 20% to 25% cheaper later on, often 50% cheaper. (I could have bought SanDisk 45% lower than what I paid for it and the price might get lower yet. It happens.)
That's where long-term investing comes into play. The longer you commit to owning a stock, the greater chance there is that such a "mistake," if you want to call it that, will be overcome.
That brings me back to one of your points: The techs have been dipping for months.
Yes, but they've been going up and farther up and even farther up for decades. And they always will. This year is just a blip in investing time. Hang in there!
--Mike Buckley |
