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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Thomas Mercer-Hursh who wrote (45562)	8/17/2001 10:56:14 AM
From: the dodger	Read Replies (5) of 54805

I agree with you about the WSJ article offering no great insight - but I mainly posted it as a gentle reminder that eventually, earnings and stock valuation always converge. Case-in-point: Last year at roughly this time, BRCM was trading around $275 a share. No doubt a good company with a future - but they were earning only around a buck a share at the time - and it seemed obvious that we were nearer the END of a growth cycle - and not the beginning. Way over-priced on a fundamental basis - yet investors "wanted to believe". So much in fact, that we had invented a "new-economy matrix" to justify the lofty stock prices. We ignored the basics. We saw what we wanted to see. We heard only what we wanted to hear. So now the red ink is flowing. But this is potentially setting us up for some more faulty reasoning in the near future. When the economy finally does take a turn for the better, all these write-offs are going to skew tech earnings & growth on a year-to-year basis. It will make for some easy comparisons. Yet - as always - investors will hear and see what they want to hear and see. My viewpoint is this: All the interest rate cuts we have seen in the last year are about ready to kick in - so we should see the general economy being to grow again on a meaningful basis. Rate cuts have always been good news for the housing - auto - nondurable goods sectors. But they mean very little - at least directly - to a guy thinking of buying a cell phone. New innovations are what drive the tech sector. But with the current write offs setting the stage for easy yr-to-yr comparisons in the tech sector, it may appear that a tech recovery is also underway. But we will need to stop and ask ourselves - "Is it real - or is it Memorex?" - lest we go right back to hearing and seeing and believing what we want to hear, see and believe. I think there's a good chance that we will once again see a bifurcated market - only this time in a reverse to what we saw in 1998 - 2000. This time it could well be investment dollars flowing OUT of a still-stagnant tech sector, and INTO the more robust general economy. Just make sure that any "growth" you see in your favorite high-tech name is for real, and not just accounting gimmickry. td

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