John- you wrote in your latest post to me of 12-11->>> “Astounding... simply astounding... I am trying to clue you in to inconsistencies in your logic and you persist on writing back to me about "comprehension"..<<<<
I too find it “astounding” at your apparent continuing lack of and now denial of having a problem with “reading for comprehension”. Or perhaps you have your senior moments (as I do), or perhaps you choose to ignore what I say as your only intent is to debate rather than listen (comprehend) the other person’s ideas.
My post to you of 12-09 regarding “reading for comprehension” was in reference to your question regarding the “mysterious” PEG in your post to me of 12/09.>> “there's this mysterious PEG. Why did you choose 1.8 <<<<
I questioned your “reading for comprehension” in my 12/09 post because in my post to you of 11/28 I provided you with my rationale for using a PEG of 1.8, so I was at a loss as to why you were asking that question when I had already provided you such..
This is our discussion in my post to your of 12/09 regarding my basis for choosing the “mysterious” PEG of 1.8-
>>>>>
2. (John’s statement)>>“ And then there's this mysterious PEG. Why did you choose 1.8? Even during the bubble PEG of 1 was used to justify overinflated prices”
(My reply)>>>John, again, you’ve got to start reading for comprehension. I discussed the basis for the 1.8 PEG in my reply to you of 11/28. “Value Line shows the DJIA companies for the last 10 years (ending 2000) with a average PE of 17.4 and earnings growth rate of 9.7% which yields a PEG of 1.8” For the past 20 years (PE 13.4, earnings growth 7.3%, PEG 1.83). For the past 50 years (PE 12.7, earnings growth 5.7%, PEG 2.2). I read a recent article in which a University was comparing their 2002 investment portfolio to the S&P500 and stated their PEG was less than the S&P500 which stood at 1.7 at the time. A Smith Barney study reflects a PEG of 1.8 for a company with an earnings growth rate of 35% with long term interest rates at 5.5%
So, I really don’t know what your basis is for saying- “Even during the bubble PEG of 1 was used to justify overinflated prices” <<<<
My post to you of 11/28- for reference where I first provided you with my rationale for using a PEG of 1.8—
>>>>>
1.(John’s statement) >>“And maybe by then the 25 year old company has matured enough to a blue chip company and command a traditional PE for a healthy and growing big company of about 17 or so.”<<<
(My reply)>>>>You appear to continue to base you projections on happenings 15 to 30 years out and you’re right in that who can accurately forecast that far into the future. Qualcomm, I believe, is at the beginning of a new technology adoption life cycle (TALC) and its growth will be extraordinary in the next 5 to 10 years. I’m not speaking of a “mature” company with “a traditional PE for a healthy and growing big company of about 17 or so.” Value Line shows the DJIA companies for the last 10 years with a PE of 17.4 and earnings growth rate of 9.7% which yields a PEG of 1.8. In my models I’ve been using a growth rate of varying between 25 & 35% (probably understated) which yields a PE of 45 to 63 in a normal market environment. <<<<<
For further reference to my thoughts regarding PEG this is my 12/10 post to Huey and Mucho which I posted prior to your latest post to me.
My Post to Huey and Mucho of 12/10-
Mucho, you wrote-
1. “you seem to be under the impression that PEG is a real metric. it's not. it was made up in the bubble years to justify ridiculous PEs. “
You should have preceded your statement with “IMO”. A PEG ratio is a means of calibrating a companies future earnings expectations with its growth rate. I believe that you would agree with me that a company that is growing its earnings at a 20% clip should have a higher PE than one growing at 5%.
2. “when one uses a PE based on next year's pro forma "earnings", that number is also a fantasy, so the resulting "pro forma PEG based on next year's pro forma PE fantasy" is a double fantasy. “
I guess any forecast of the future (E, GR, etc) could be considered “fantasy” by some. But, it’s what we have to work with. I don’t believe any serious investor would project a companies future based entirely on it’s past. <<<
All the best, hoping your affliction is a temporary one. If not, maybe you should consider seeking help.
- Jim |
