Where were we wrong? Is holding tech now still wrong?
These are painful questions to ask. Must be why this board is quiet now, although there is Blood in the Streets.
I will say where I saw problems, but did not analyze them enough, and where I did not see (or still do not see) problems.
The P/E ratios for big companies like CSCO were excessive. The talking heads were always touting the blue chips like Intel and CSCO, rather senselessly. This was a sign for concern. Big companies cannot grow that rapidly. What I failed to appreciate fully was that when the re-pricing occurred in these big companies, the small-caps would be pulled under by the draft of the large companies. Therefore, if this situation ever occurs again, I'll be quicker to just raise cash until the re-pricing is done.
I paid some attention to industry estimates of future growth in the industry. Now I realize that the dynamics of such estimates is always to be optimistic, and will ignore such estimates in the future.
What seemed a valid argument about the new paradigm still seems valid to me. Technology will grow. Inflation is under control. Higher P/E ratios are warranted. The comparison to 30 year averge P/E's, or 70 year average P/E's is distorted, in that we do have better monetary policy now, and we do have potential productivity growth.
The rapid fall-off in demand confuses me. Supposedly we are in a world-wide market now. While the US may have got ahead of itself in installing infrastructure, is this true of the whole world? It must be, but how is that? Some of these countries, like China, have a lot of catching up to do.
The use of stock options as compensation will be tested in this downturn. Will employees be willing to gamble. Will management be forced to re-price options.
Lastly, I mis-read Greenspan. He told Congress he thought the CPI was probably overstated by about 1%. It is common theory that a little inflation is helpful to adjust prices (because people are more willing to accept no raise in slight inflation than they are to accept a pay cut in no inflation). Yet he still saw a lot of inflation. Must have been the increase of fuel costs that concerned him.
At least with a recession, fuel prices should drop. Will and when will stock prices recover? |
