Zach, I think price/sales is fine, as is pe ratio. But, as you said, no one measure is adequate and some of what we come up with as a fair value is flat out "best guess" work. That is what the analysts were doing for five years with the internet cos. and it turns out that the great majority of their guesses weren't so hot. I really don't have a problem with a person whose guess falls flat on its face once in a while. I'd better not, as I'm the guy who liked Pagenet at $13. <g> I do have a problem when all the guesses are in the same direction and they play leapfrog on upside "targets." There is no way to do developmental type cos. without making a lot of highest probability assumptions (I have to leave the word "guess" out of my dialogue now that I am going back to work <g>). Many, many good portfolio managers can't go this route. If there is nothing solid to grab on to, they just wait until there is. If they are comfortable with that, fine, but I don't want to miss all of the emerging growth names, so I'll take some stabs with a part of my portfolio.
I guess what I'm saying is that developing a valuation model for a co. like Intel or Exxon is very different from developing a valuation that makes sense for Genzyme Tissue Repair. However, you have a decent chance of being out to lunch on even the more established cos., which is why I take a safety first stance with diversification, hedging, and pacing around the room kicking furniture. <g> |
