Larry, You have a very logical point there. I agree 100% with your analysis. For these reasons I missed out many rallys in YHOO and AOL. The problem I have is we take a very mathematical and logical stand in everything they do. People lose their sleep over mundane issues like P/Es. (Now everyone will call me an idiot !)
If it was so mathematical, if it were a science - why can't we predict it correctly like we predict the stars of the solar system without seeing them ? The reason is that investing is an art. It is - and never will be - an exeact science. It is about human emotions and sentiments. It is about supply and demand. What value do diamonds have ? Why doesn't cost of diamonds plunge ? According to your analysis, they should be worthless. Gold yes, its got resale value, but diamonds ?
Increase the float, decrease the cap, reduce P/E - what will that achieve ? What are your goals ? A guaranteed return on your investment ? If you had joined the ride at the begining, the return was guaranteed. That's why I underline the role of psychology in investments. If you understand the average bull investor, he's made his $$$, and pulled out his initial investment many times over. What is his risk now ? Why do you expect the stock to crash ? Why would he/she panic ? And to the contrary of most opinions, an average long is not greedy. He/she is quite satisfied with the movement - goes in and out or at least tracks the investment to death, knows the risks. Does that sound like the profile of a greedy person ?
I believe that a good product in the hands of a bad management can go to dogs. A worthless product in the hands of great management team will fly. Look at ORCL...Few years ago I worked at an airport and had the good fortune of deciding the de facto database standard for ALL applications. I wasn't as wise then. Chose a technically superior product INFMX. Three years later, I had to retract. This time i went for ORCL - buggy, awful support, not as powerful...as a product back then it was worse than Sybase. Did that alter the fact that it had an installed base of approximately 97% of the db market ? The management was great. I should have believed in the people behind the product rather than the product itself.
Due to this reasoning, I predict a plateau in price movement rather than the drop to $30..... Does that make sense at all ?
Regarding EBay, AMZN, CMGI...I don't follow them or use their products - am not qualified to comment. I follow the market leaders AOL/YHOO/MSFT. Am heavily invested in all three (was on 31st and will be on Monday).
In the end, don't stress yourself out. Just enjoy the movement. This is a new world being created - tomorrow someone may get a Noble Prize for coming up with an economic valuation model for internets - what will you do then ? Kick yourself ? When they lose momentum, accept the 5c movement if you believe in the company - if you don't, then exit. Make your behaviour consistent with what you want to achieve. Make wealth, don't try to influence or fight the market cap of YHOO ! Believe me, you won't find success there. I may have to go over to my beautiful, value oriented dogs - CIEN and IMRS - if I want to discuss traditional valuation models.
JMHO.
AOL is a great stock, if people think it will double, it will. MSFT did. Iomega, as people tell me - didn't. If it doesn't, pull out. Think win win. Its all about sentiments, belief and making money.
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