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Technology Stocks : BAY Ntwks (under House)
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To: Bosco who wrote (5234)4/15/1998 4:36:00 AM
From: Moominoid   of 6980
 
Thanks for the explanation. Yes, I can see why you might think BAY - and alas, the whole market is
overvalued. While you have sort of elaborate more in your response to Victor's - incidentally, I sort of
agree the market is overvalued

There are some ways that the current market might not be overvalued. For example the equity premium may have fallen. The boomers are less risk averse perhaps than their parents and are not so worried about putting money into stocks. So the appropriate discount rates are lower than in the past. Or investors are looking at earnings. In this case the market is at fair value even with the historical equity premium. The problem with earnings valuation is that you can't derive an equilibrium (unless all earnings are paid out as dividends of course) ie investors won't get the return they expect.

- does you model take into account diffferent sectors and the technical
strength of the target stocks. For instance, it seems that there are loftier stocks in general and those
within the same segment of the sector.

Large cap stocks have a premium for liquidity which isn't accounted for by the model. I would argue that the model doesn't explain much at all about short-run dynamics of stocks but in the long-run prices should move towards an equilibrium soemwhat similar to this.

David
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