hi Bruce,
Yet, the reality of the market is that the supply/demand issue of a particular stock and how it shapes the price/volume action. This continues to create ebbs and flows of items you would label as 'Bubbelonian fare'.
yes, that is an eloquent way of saying the market will do what it will do, including maintaining a Bubblicious bias perhaps. i really have no quibble with that--it's just a reality like the weather beyond my control (or so said Malkovich).
what prickled my pear was the quote from the book saying cos (all cos? just "new economy cos"? just cos who hire certain consulting firms fond of animal metaphors?)...saying that cos are now (or perhaps should be?) focused on their market cap (i.e., share price) as opposed to profitability. this "trend" is put in the same pantheon as other tongue-ticklers such as "From Assets (atoms) to Information (bits)".
again, just to refresh, the quote i cited started:
From Profit and Loss to Market Cap. Total market capitalization has become the new scorecard for business competition because it unambiguously ranks all of businesses globally across industries.
and my point was that this shows absolutely no appreciation for the bubble and its horrendous consequences. there is an interesting book called "The End of Shareholder Value" that addresses at length the stock-centric business approach of certain IT cos. however, the author's conclusions were not as bullish as in Fault Line (there's a nice discussion of that gorilla named CSCO, when it was worth about $400 billion more). so the observation that certain IT cos were focused on their stock price more than profitability was not unique to Fault Line; what was unique was spinning it as a desirable trend.
getting back to your point, Bruce, a stock price at any moment represents a supply/demand outcome. like fashions, it can vary widely and does not necessarily stay in keeping with profitability (actualized or potential) over the short term. but ostensibly, stocks over the long run will be priced according to their profitability, with some margin (perhaps large) for error over short periods.
therefore, profitability is the horse that by rights should lead the price horse over the long run. it is bassackwards for cos to focus on short-term share price momentum at the expense of long-term profitability. that was my quibble.
the last part of the cited quote was:
Accounting is trapped in a P&L view of the world, but investors "get it" (or, at least, they did until the prices collapsed).
so what is the point here? that the bubble was "getting it" (i.e., rational); and now investors no longer "get it" (are irrational) because they are concerning themselves with profits a bit? these are tough questions that only a true resident of Bubbleonia will be able to answer; they are many light years away but i wait with bated breath. |
