Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Ilaine who wrote (6076)	7/19/2001 11:40:54 PM
From: Mark Adams	Read Replies (1) of 74559

I remember this discussion from CFZ from some time ago. That it requires a doubletake on your part suggests to me that you will be less likely to fall into a trap- that being the current price of a stock has any relation to it's value. Yes, for the players involved it was merely a transfer of wealth. And market cap is a bit of a fiction in some respects. But consider all the other shareholders, who are looking at their statements based on the last trade. This is how we are taught to keep score. Larry Ellison (from a comment today) now needs to find a way to live on a mere 300 million, based on the most recent marginal trade of Oracle stock and the size of his holdings. Side note: with equities, the size of the pie isn't fixed if management is doing it's job and building enterprise value. Management can destroy wealth too, by allocating resources in a manner that precludes a fair return on investment (if any return). This is the basis for Heinz belief that the excess of recent years resulted in wealth destruction- capital was spent in a way that precludes a fair return on investment, hence was destroyed. I was reading in Gary Schillings latest on Deflation today, that people don't consider that the refrigerator they pay more in nominal dollars today actually costs less than what they paid in the early seventies, considering inflation and improvements in efficiency (lifecycle costs). They use the short hand, it cost $474 then and $575 now- it costs more now. Maybe our brains like to do short hand on these types of things. After all, it has to parallel process 1000's of inputs simultaneously, and can't get wrapped up in the real value of a going concern with a saber tooth tiger bearing down.

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