Hey, Geoff, this really can get bruising out here, can't it?!
Anyway, to respond to your questions ...
>> I must ask what you think will happen if the market corrects. Don't you think the lofty stocks--any of them--will fall harder, faster?? <<
Absolutely. Some high-flying stocks (and a few medium flyers too) will fall very far and very quickly when (not if) there is a correction. And some of them won't have to wait for a "correction". They will fall under the weight of their own overvaluations (e.g., NSCP) even as other stocks perform well.
As time goes on though, this thing we refer to as "the market" becomes less of an influence. I would say that there really is no such thing as THE market anymore. Rather, there are market segments which move in their own cycles. These market segments are not entirely independent of one another, but there is more independence than dependence. Take, for example, the sectors for semiconductors, PC's, and software. If there are any three interrelated items in today's world, these are it. Yet look at the stocks in these sectors. Software is way up, PC's are up more modestly, semi's are way down. How can this be??? Aren't sales of these things tightly coupled???
Yes they are, but there is a huge difference in selectivity between the various companies in these sectors. Semiconductors are commodities. PC's are not quite commodities but they're close. Software is not a commodity at all, it is the most distinguishing feature of an automated system. Therefore it follows that semi company stocks are commodities. When chips flood the market and semi prices decline, all semi company stocks fall in unison. (The notable exception, however, is INTC. Why have they prospered when all other semi stocks have fallen? Because they have a high-quality product which is distinguishable from the pack.) Likewise, PC stocks have moved somewhat in tandem, but not to the same degree as the semi's. Compaq, Dell and Gateway have done fairly well the last few years, however it will be difficult for any of them to distinguish themselves from a quality perspective. All PC's need to do the same things -- that's what people want and that's what each will build.
Software, on the other hand, is quite a different story. Individuality abounds and software vendors can readily distinguish themselves from one another in terms of performance, quality, features, etc. This, I believe, reduces the chances that there will be an overreaching correction in the software segment that will hit all software stocks equally. Sure, people will get nervous from time to time and bad days or weeks will occur in which all software stocks drop. But the highest quality software stocks can be very resilient through these periods and rack up immpressive gains over the long haul. The flip side to this is, as you pointed out in your earlier post, that the weak and overhyped software stocks can really fall off a ledge. The key (no secret here) is to be able to separate the companies with the true long-term, value-added, best-of-the-bunch products from the also rans. I think if you look back at your list of software "busts" you will see that (a) hype and overvaluation were responsible for the magnitude of the tumble, but (b) an inferior or indistinguishable product led to the advent of the tumble.
Getting back to PSFT, this is why I don't really expect a big drop for them. Yes their price is high, but their product is noticably better than their competitors' products (ala INTC.) I could be mistaken, but I'm comfortable with the price.
>>You (straight faced nonetheless) think that Dec 97 PSFT will be $180 (split adjusted) or even $360??? <<
I don't necessarily have any given target set for any given period of time, but I *wouldn't be surprised* to see it happen. ($180 that is, not $360.) I do think that the chances of PSFT doubling within a year are greater than the chances of it being cut in half. Longer term, I don't see them doubling every year as they have in the past. No stock can do that forever. But well above "market performance" (as they say on Wall Street) is my expectation for the next 5 to 10 years. (Yes, I am in this for the long term.)
>> surely you agree that some investments are more or less weighted in
risk. Further, "high risk, high return" would speak reams to PSFT. <<
Surely I do agree.
>> What OTHER stocks do you like long?? You'll laugh, but I like ORCL! <<
Actually I'm not laughing at all. I think ORCL is a good company, but applications are not their strongest hand. Their database is top of the line (again, high quality products will take you places.) Their development tools (Forms, Reports, etc) really leave something to be desired and I think they have work to do in this area. Their applications are good, but could be better. Overall though, they're in the right business at the right time and I think you'll get a decent return from them over time.
I'm not really following any other software stocks at the moment (I really need to diversify into other areas.) My favorite sector to follow right now is semiconductor capital equipment stocks. There are some very interesting threads over on the semi board which you may want to check out if you haven't already. Since the semi equip's all went down together over the past year I am expecting most of them to rise together over the next two years.
Tom
P.S. Sorry for the long post. Hope your face doesn't hurt from grinning so much! :-) |
