Michael, thank you for the well thought-out response. Let me in turn take exception with your thought, "You seem to think that buying at the top of the most overpriced market in history is smart."
My points are the following:
(1) It is not at all clear that any of the stocks so mentioned, even the internet darlings like amazon.com truly are overpriced. That is because nobody has a model of exactly how to value these companies. It is absolutely true that *compared with the average exchange-listed company* they have had a stunning and meteoritic rise that is nothing short of astonishing and would seem to invite a short interest on no other grounds than the old idea of what goes up must come down. Change, however is the one constant in all of the universe, and it may very well be that the investing universe is not exempt to the maxim. It may be true that with these companies, the growth in revenues and earnings that follow from an initial position on the Web as it grows and expands in importance may well be compressed into a short enough time horizon to justify the lofty price appreciation. I do not say that this is true, only that it very well might be, and in no way does it make sense to me to compare these companies with others not connected to the global electronic medium. There may truly be a bubble here, but if there is it has not been adequately demonstrated. More likely is the notion that there are simply a lot of people who do not understand the notion of geometric or exponential growth who are afraid of what they do not understand. note also that i am not saying that it is not possible for investment valuations in these companies to get ahead of themselves. Rather, i maintain that we simply od not know how to value these companies at this point.
(2) There are many high tech companies that are just coming out of a very nasty turn in semiconductor equipment industry and that have a long away to go in recovering value lost in the last downturn. Those of us who follow the semiconductor equipment sector are students of following the pricing dynamics coincident with the book-to-bill ratio, and we are seeing the turn around in pricing there as something we have waited for a long time. There definitely is an element of overreaction in stock market pricing, especially in the high-tech sector, and we in that sector have seen it on the down side. We hope to enjoy it on the upside. It may well be that at the moment some of the issues are ahead of the business fundamentals (and this is Infrastructure's viewpoint) and so in the short-term, there is room for volatility with some down side, but longer-term, say on a 3-5 year time horizon, the direction of IC development is upward and onward, both with respect to quantity and developing horsepower, and that will provide a long-term driver for semiconductor equipment sales. In that sense, i and others with me are doing anything but "buying at the top of the most overpriced market in history." This criticism seems to me to be much more applicable to people who buy big blue-chip consumer stocks with their 40-50+ PEs.
(3) I never buy options of any kind. I do occasionally sell volatility - if i have an issue that is a little ahead of itself and that i think might be due for a small pull-back, i will write 10 or so near-term covered calls on it (a dollar or $1.50 out of the money) but i never buy calls and i won't even cover the positions with real explosive growth potential or possible take-over candidates.
It has been a pleasure chatting with you. Good luck to you on your investing style, as long as it doesn't interfere with mine ;^)
jess. |
