I am not seeing a complete picture of the choices here
What of the millions of individuals who might see that the place that their 401k or IRA money might be better preserved is in money markets accounts for the next few quarters?
There is nothing inconsistent here. When institutions and the public lose confidence in the economy and equities, the real or perceived risk factor in equities go up to the point that the risk adjusted return on holding money is the better investment. This happens all the time in the world economy and does create a liquidity crunch in the markets. Essentially when this happens the system breaks down.
In regard how this affects the valuation of AVNX, you stated in your post "for a few months time." The affect is not permanent, as long as economic confidence can be regained. I somehow can't see anything this disasterous hitting the U.S. economy absent an incredibly horrific national or world crisis. Which if it does occur, cash might not be a real good place to keep your wealth either, I would then suggest gold.
In each case, money is flowing to its best risk-adjusted return. When people think the economy is really going to hell in a hand basket (I mean 1929) cash gives you a better return of cash-inflation, than equities will, wealth will therefore run to cash, and other fixed assets like gold.
Tinker
Again, with my valuation, it is based on assumptions of the world not falling apart, Avanex executing on its business plan, Avanex dominating its markets, etc. If these assumptions hold, then the stock price will rise. On the other hand, if you think the world is in danger of falling apart I would move my money into gold and other precious metals right now.
Who knows, such a move may turn out to be the smartest thing anyone has ever done on these boards (other than the nice coupe of buying RMBS options in early Jan 2000 ;) he he...but dang, if only I had moved all those profits to cash I wouldn't be down a $100 gs! since this presidential fiasco. Ugggghhh! The realities of the cyclical market and externalities).
But the real point is, all things being normal, and AVNX executing like we think it will, on the market opportunity that we think exists, overtime, AVNX stock will approach a fair present value or the market is not efficient at all.
The best example out there might be Cisco. Cisco crashed big time in 1994. Cisco in fact missed at least one quarter that year which is what brought on the crash. Go look at a ten year chart of Cisco, that blip is hardly noticeable anymore because Cisco over the long-term sustained its competitive advantage and the market over the long-haul returned to Cisco in spades.
Buying stocks for whom your assumptions are correct, and at below their implicit values (because the market undervalues them greatly either because of erroneous expectations or an undue risk premium), usually results in charts that look like Cisco's over the long-haul. In AVNX's case, I think the risk premium is justified, but the market clearly has not taken into account the yet untapped potential of all of its future products, products which are only at the mere beginnings of rolling out. |
