For example, anyone recommending we buy QCOM at $50 is automatically implying that they think the economic value that will be generated by the company will be at least 35 B$ in constant dollars.
I suggest it will be more fruitful to test the basis of this belief rather than test for silver-bullet type one-size-fits-all valuation tools. You might be amazed what gets stirred up when you ask the question "why do you think Qualcomm will generate more than 35 B$ worth of profit".
I know this discussion always ends up revealing more about the authors' moods toward the market than about the soundness of any theory, but I think I'd agree with what you just wrote, John.
Like most people of the ill-fated GK class of 2000, I haven't much faith left in my stock-picking abilities. So perhaps it's just pessimism what i say this: I for one don't see any Gorillas out there with great prospects, reasonable valuation, and a low chance of failure.
I certainly believe that Microsoft, for instance, has a strong future ahead of it, i.e. low chance of failure, but while .NET could prove extremely lucrative, it's unripe for serious individual investment at this stage. Besides, my financial future is substantially pegged to the stock anyway, so that's ruled out.
EBay, which is appealing in ways reminiscent of Gorillas, stands a very high chance of continuing to grow cash flow rapidly, but the P/E is just very high (~ 200). I haven't checked out the P/CF.
I do in fact have money in SEBL & QCOM (also a share in BRCD, but that's really just to remind me to watch out). But that's really more a matter of my temperament (unwillingness to sit out the market) than of any real certainty about the prospects of these two companies. From a broad perspective, I'm really uncertain whether and how 3G will be used by the masses. I can't be sure, but I don't think i would have been so cautious about, say, the PC in the late 1980's. I'm very concerned about the mortality of patents, as this exacerbates the downside when markets are slow to develop. |
