Gorilla Game & Financial Ratios:
From: Geoffrey Moore <geoffmoore@c...>
Date: Sat Mar 24, 2001 9:27pm
Subject: GG theory and stock market pricing
To continue our discussion of basis gg theory:
Gorillas are not exempt from financial ratios. They just outperform them
because the ratios are calibrated to the mean. The market temporarily
turned its back on financial ratios and is now correcting back to them. In
so doing all tech stocks will be revalued downward, I expect, until the
ratios are back in line with historic comparables. There is nothing that
any company's management can do about this. It is the moral equivalent of
inflation or the like -- the value of the underlying currency is being
reset. Thus it is a good time to be out of the market.
The market, being the bid/ask mechanism that it is, should reset relatively
efficiently, and I believe relatively quickly -- my target has been Q2 of
this year for some time now. I think we then hide and watch for another
quarter, praying not for a rebound but rather for flat, tame, tepid,
listless, dispirited trading at roughly the same depressingly low index
valuations. That would be goodness in my view because it would imply that
the background has stabilized and we can focus once again on the foreground.
Prior to this stabilization, as I have said before, gorilla game effects,
which are essentially Technology Adoption Life Cycle effects, are muddied
and even erased by this larger correction. Afterwards, my claim is they
will reasset their primacy.
This leads us to a key question around "gorillas at any price?" I am afraid
that I contributed to this notion because I simply did not want to use
financial analytics to challenge the bid/ask mechanism of the marketplace
but instead thought it would be safe to simply float with it. In
retrospect, this is only true in relatively placid times where the market
oscillates around a mean or rises or sinks modestly over time. That being
said, I expect the shock of the last year will have chastened investors for
many years to come so that, once again, floating with the indices, using
them as realistic grounding points, will be a relatively safe swimming
strategy.
Geoff |
