Mike, I agree with your comments:
The problem is that the "history" you cited coincides with the greatest bull market in technology crapola ever. If we are still in that underlying tech mania, and what we are seeing now is just a blip to long term trends, then your valuation markers make sense. However, if we go back to other historical periods when tech was out of favor and not number 1 in investors' minds, as it is now, we would find a different story.
I would have liked to have gone back 11/so years to include the 1990-91 recession as a point of comparison, but didn't have access to that data. Whether/not the tech. rally is still in place, we'll see. I think it has a lot to do with how much money investors have to spend, their timeframe, and probably most of all their employment situation. The current mantra is that tech. still has the best chances for sustaining some amount of earnings growth should the economy turn down - though the question of how much to pay for those earnings remains. We also have the "earnings quality" question, where many of the big names like Cisco have played hide-the-ball via merger/acquisitions, and others have gussied up their apparent earnings with investment income, and finally there's the double-reverse ESOP accounting that lets companies book an expense as income, and then hand the bill to the shareholders.
It may be difficult for investors to break their five year habit. There's a lot more people, both in the US and abroad, in the market, and they mostly have a tendency to play "follow the leader".
If the relative valuations shown in that table were to hold, one could try hedging by going long MSFT, ORCL, INTC, and AMAT and short CSCO SUNW and NTAP, but we all know that is a tricky business. |
