<there is only one thing you really need to know: It's not a value if it doesn't go up.>
I'm not trying to be a smart-ass, but based on this logic, you won't know if it was a value until after the fact. If you don't buy and it goes up you don't make any money.
The bull gurus come out of the woodwork during up cycles and the bear gurus come out of the woodwork during down cycles. On the way up, the gurus tell you not to worry about a stock trading at 1000 times book value. They tell you not to worry about a stock trading at $100 per share even though the company only has $1.00 per share in cash. They tell you not to worry that the company doesn't pay dividends. They are going to use all their billions in free cash flow to grow to the stratosphere next year. The gurus tell you not to question analysts that project $5.00 per share in earnings next year and $10.00 per share in earnings in two years even though the company lost $3.00 per share last year on sales of a measly $250,000.
<No matter how compelling the arguments may be, there is only one thing you really need to know: It's not a value if it doesn't go up.>
In my opinion the writer should have said this.
No matter how compelling the arguments may be, there is only one thing you really need to know: The manner with which one should calculate value doesn't change that much over time.
People can justify that a company with no earnings and $0.25 per share in sales is worth more than General Motors. According to the above writer's flawed logic, that stock had value in March 2000 because it went up. What a crock. Why did so many stocks such as that one go up? Because the market of stocks went up. Because the other POS overvalued stock went up. Because too many gurus bought stocks without knowing what VALUE is. Because too many companies took advantage of their inflated stock prices to buy other companies with paper, giving investors a false sense of value and further justifying the hype. And what's happening today? Those same companies are writing off those acquisitions because they overpaid for them.
Now the gurus are telling us not to read balance sheets. Don't worry if a stock is trading 50% below their cash net of debt. Don't worry if a company is trading at 0.5 times tangible book or 0.3 times sales. No, those companies don't have value. Why? Because their stock prices haven't gone up - YET! What a crock.
In fairness, there are times when I would agree with the writer's logic. When a specific stock bucks the trend of the market, or makes a big move on above average volume when no other stocks did the same thing, it's a safe bet that somebody knows more than you. When 3300 stocks are down for the year and 200 are up, you can't assume that somebody knows more than you. You can only assume that somebody sold because the other stock went down. How is that different from buying in March 2000 because the other stock went up? It isn't. The people buying most stocks in March 2000 and selling most stocks in August 2002 don't know what value is. |
