Well, I have some Broderbund stock (BROD) and it is doing the
same thing. Only Broderbund, unlike Borland, had decent earnings,
exceeding the expectation, and with possibly the best-selling
game of all time ("Riven", the sequel to "Myst") the better part
of whose pre-Christmas sales were not even included in the last
quarter, could be expected to post some decent profits this
quarter as well. "Myst" has had legs for 3 years now, and is
still selling well. They don't sell a lot of games in Korea,
just the U.S. and Europe, so the Asian Flu shouldn't be affecting
them. It seems that a great number of tech stocks are sliding,
some with reason, some without, but all treated as if they had
the Hong Kong chicken flu. I don't see why Borland should be an
exception.
I'm a novice investor, so I probably don't know what I'm talking
about, but I'll bring this up and see if somebody can explain it
to me. (And yes, I have a long position in BORL). The whole reason
for investing in stock is to get a better return on your money
than the 4% interest at the local Savings and Loan, which after
inflation and taxes is a money-losing joke. But assuming a
hypothetical situation of little or no inflation, and only slow
growth (hey, how about no air resistance either - just a little
engineering humor) then one would have to compare the dividends
paid by a company to the stock price and compare the ratio to
the interest rate paid by the bank. At $10 per share, BORL needs
to pay out 10 cents per share dividend per quarter to beat the
lowly bank. They need to earn more than that in order to be able
to keep a little profit for a rainy day or to grow the company.
I realize that if they don't actually pay out the 10 cents, but
keep a greater share and grow the company more, the assets of the
company should increase, and the share price commensurately.
But, as in the film "Jerry Maquire", I still have to say...
"SHOW ME THE MONEY"
What I actually see in the market are stocks whose prices seem
to be purely speculative, invariably jacked way up based on
what people conjecture the company might earn NEXT year, that is,
if everything goes right, with no relation to what the stock is
actually earning for its owners NOW. In Europe (where I live and
work, although I am a US citizen) the prevailing business
philosophy until recently has been to maximize RETURNS for the
stockholders, i.e. dividends. If the dividends are reinvested or
not is irrelevant. The philosophy in the US of the business
managers has been to maximize the STOCK PRICE by whatever means,
even if little or no dividends are paid out, with the idea that
this is a better form of return on the investment. Well, I don't
see why it is any better. If you buy low, and sell high, you
make money. If you just own the company, you don't get anything.
If the price of the stock were concretely tied to net assets,
this would still make sense. But when I look at the high P/E
ratios, I don't see how on that basis most stocks offer any
real value compared to putting the money in the bank. Same for
the balance sheet regarding assets.
But when I look at the doubling of the indexes over the last three
years, I see why people have poured money into the stock market,
perceiving a 30% return per year. But isn't the money pouring
in, chasing a limited number of stocks, what has driven the prices
up - as in artificially? It's not like the GNP has doubled in
three years. Isn't this kind of like the AMWAY quasi-pyramid
marketing scheme (no offense to any AMWAY dealers out there...)
meaning that the ones who get in first make a lot of money, and
the ones who come last into a saturated market can't find any
new recruits? This kind of growth I perceive to have been based
more on self-feeding speculation than on fundamental economic
growth, and when people have no more savings accounts to plunder
to throw into the market, it has to slow down. When it does
slow down, and one can no longer buy a stock with the expectation
that the price will increase by 30% along with the market, then
one has to look instead at what the company is paying out in
dividends. And lo and behold, a lot (most?) aren't paying crap.
So there is a run into bonds, and the prices start coming back
down to get in line with the company earnings.
So, in other words, perhaps we've all been spoiled by prices
which were way too high, and now they're returning to where
they really should be, painful as that is?
Of course, if a professional investor has a plan to make money
based on the actions of other investors, rather than on the
fundamentals (and real values) of the companies being traded,
I suppose this is as legitimate as any other strategy. So I'm
not saying that a person should just sit on their money merely
because stocks are generally overpriced.
I've seen a lot of wishful thinking on this and other threads
(by those with long positions in that stock), optimistic comments
about 'trains leaving the station, hold on', etc. Also complaints
about suspected manipulations, or the illogic of the 'big boys'
who are no longer doing the favor of driving up the price of
the stock even further. But everybody wants THEIR investments to
go up, don't they, so its kind of hard to see things neutrally.
Somebody tell me this. If nobody wants to buy a stock, but those
holding it also don't want to sell it, is the price going to
remain stable, or is it going to slowly drift down? Or, put another
way, if the price is set by the market maker, in a time of very
low volume, what strategy is the market maker going to use? |
