AD, The Barrons argument makes sense. But I think these kind of analyses are of limited value most of the time. As Tito pointed out, a stock that is considered safe will tend to hold higher valuation. Perhaps AMAT was not understood as well in 98 as it is now, and that is why this time it is holding up better. AMAT went up about 10 times from the low in 98 to the high in 2000. A similar valuation argument back then would never have predicted such a huge rise in that period. I am not suggesting any repeat of that, only trying to point out the limits to this type of analysis. Also, I recall experts arguing that AMAT was still a good buy up near its high in March of 2000. I don't think that was all manipulation, I think most of them actually believed this.
I know that others on this thread are much better than I at fundamental analysis. One reason for that though is that it is not high on my list of priorities right now to really study all that. Perhaps I am wrong, but it seems that much of this numbers approach amounts to "fuzzy math", to use one of GWB's terms. For one thing, it could be argued that such fundamental analysis is already priced into the stock. I don't want to try to compete with analysts who are are studying all these numbers on a full time basis, and who also have a research staff at their disposal. Also, during major shifts in our economy, like we are having, I think the ability of analysts to forecast earnings is greatly diminished. There are just too many factors. Morgan has suggested that when orders return, they will return in the form of a flood of orders. I don't think earnings estimates will be able to predict that.
I recall analysts arguing AMAT was a good buy back in May when it was trading in the high 50's. Now that it is about 30% lower in value it should it be sold because it is too expensive? I am not sure about that.
I am gravitating more towards trading because of all this. There are of course many good approaches that can be used in tech stocks and with AMAT. You seem to be doing very well with your approach, and I appreciate you posting your trades here. One reason I find this AMAT thread interesting is because of the many approaches that are used, and because the discussion includes other stocks as well.
Regarding the different approaches, I think the approach one takes should be a function of their personality and certainly their personal situation as well. Therefore, there is no one correct approach to use.
I think the best approach in stocks is to have a good long term strategy for a market that tends to think short term. By long term I mean any approach that can be used for a long period of time, including active trading, as well as trading where positions are held for years on average. Such an approach should not be guided by emotion (except maybe on a contrarian basis). AMAT threaders tend to buy when it is cheap and sell when it is high, so obviously there are a lot of good approaches here.
I am holding AMAT here, if it gets into the mid 40's I will consider lightening up on it. Or maybe I will change my mind just to buy something else that seems to be a better value, or to move out of margin. Right now I am focused more on the question of how the overall economy performs and how tech spending pans out in the next year. My gut feeling is that the economy will rebound next year more than we think. I also am focused more on other stocks that I think have more short-term upside potential than AMAT, for example those that just had a big selloff, but which have good prospects going forward. If the economy is heading out of downturn now, then small-caps will probably out-perform, so I am gradually buying in to that area.
Hope my post is not too long here. This is just right off the top of my head. Hopefully I am contributing in some way to this thread. I certainly get a lot of benefit from others who post here, yourself included. Also posting here tends to help me sort out my own views.
Regards,
John |
