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Technology Stocks : Vitesse Semiconductor
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To: Dan Spillane who wrote (707)7/11/1997 10:21:00 PM
From: Robert G. Harrell   of 4710
 
Dan, knowing what a smart investor you have proven yourself to be, I'm glad to see you have finally seen the light about this stock. When I heard James O'Shaughnessy preaching the gospel of low price to sales ratios, I started doing some calculations. He only buys stocks with price to sales of 1.5 or less. I think VTSS was around 14 at the time. It really scared me. I finally bailed out at $54 the end of January and put my money in a retailer with a P/S < 1 and slept much better.

If you haven't read O'Shaughnessy's book What Works On Wall Street, I highly recommend it. I've had it for six months but finally read it last week.

On page 280 he says: "The other four losing strategies buy stocks whose prices have been pushed to unsustainable levels by investors' huge expectations. This is reflected by the stocks' high multiples. With strategies like cornerstone growth available, there's no reason to buy stocks with the highest price-to-earnings, price-to-book, price-to-sales, or price-to-cashflow ratio. The odds for such stocks are about as bad as the story is good. Investors who buy these stocks always brag about the handful that work out and conveniently forget the majority that don't. The evidence is painfully clear--if you habitually buy stocks with good stories but the highest multiples, you'll do much worse than the market."

Regards,
Bob
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