Forget about how subjective Value is...that's not the point. For our example, Let's assume we can agree on what's overvalued and what's undervalued.
>>Look up undervalued in a dictionary. I think you'll find that it has nothing to do with future performance
I didn't look it up; however, I think you're wrong. Undervalued means that the market does not give a high enough value to this stock; thus, it should eventually go up. If it does not go up or if it shouldn't go up...than its not really undervalued ( alittle 20/20 hindsight). The opposite is true for overvalued.
>>Lets try a pragmatic, real world test. Which has done better over the past 12, 6 3 and 1 months, 'overvalued' (according to you) Dell, or undervalued (according to you) CPQ?
Once again you make the mistake of looking at past performance to justify your argument. When Iomega was making its run-up your same argument could have been used for that stock. Everyone knew the stock was overvalued...not undervalued.
Finally, just for a realistic point: You don't see Warren buffet or the like buying a stock because its overvalued. They always says its undervalued. the secret in this market is to find undervalued stocks before others do.
Thus, I would always buy undervalued stocks rather overvalued. |
