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Strategies & Market Trends : Value Investing

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To: Investor2 who wrote (5723)	1/11/1999 9:15:00 PM
From: James Clarke	Read Replies (4) of 78670

That whole P/E = growth rate is being bastardized now. Peter Lynch meant it to be for growth rates in the 10-30% range. Clearly a 300% growth rate is not sustainable for any length of time. Once you get above 30%, you're playing with fire using a formula like that. Because once the growth rate goes down from say, 50% to 30%, you're meat. Look at CATP over the last year if you want to see that dynamic in action. The key is for a formula like that to work, the growth rate has got to be sustainable for a while. 3-5 years minimum. AND THE MARKET HAS GOT TO BELIEVE IT IS SUSTAINABLE FOR A WHILE. Yahoo and these internet stocks are a special case because there is no rhyme or reason to their valuation. I read the analyst reports - the analyst with buy recommendations on the stocks are laughing at the valuations now. I have never ever seen an analyst (Blodgett at Oppenheimer) keep a strong buy on a stock which he predicts 50% downside in, and admits that it is the most expensive stock he's ever seen in his life. What does this have to do with value investing? I made a big mistake here playing games with these things when the guy on the other side of the trade doesn't care what the valuation is. And this guy is kicking my ass right now. These stocks are going to die a spectacular death, probably within six months. And there are people who will do jail time when that happens. But they could triple before that. Treat them like something you got in the mail that has a return address you think you've heard of, but is ticking and has wires sticking out. i.e. throw it in the neighbor's yard! JJC

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