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Technology Stocks : America On-Line (AOL)
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To: RocketMan who wrote (5683)2/24/1999 1:41:00 PM
From: Steve Robinett  Read Replies (1) of 41369
 
Rocket,
You comment that during the real estate boom people askedHow could homes worth 30,000 ten years ago now be worth 200,000? The obvious answer is that someone was willing to pay that much. I'm not being flip. The pricing model for residential real estate is very different from the usual equity pricing models. Residential real estate is not usually something one buys with an eye to the return it gives you. Within the context of a given communities population growth, income growth and inflation--all components of real estate pricing--the real question is how much one wants to live in a particular place, a totally subjective measure of value, whereas the real question with equities is how much it will return and how that compares to other returns.

I'll keep my point simple. Boomer money is driving the market to levels considered overvalued by usual models (cash flow, earnings, whatever). Even Greenspan agreed with this one yesterday. The market will stay overvalued as long as Boomer money is flowing in but, at current levels, it could lose 20-25% and still be overvalued using the usual valuation models. And a 20-25% drop would scare the crap out of a lot of people.
Brokerage houses are worried about overvalued Internet stocks sparking such a selloff (see the front page of today's Wall Street Journal) and the impact it might have on novice investors' enthusiasm for the market.

I'm not making predictions just pointing out a potential problem.
Best,
--Steve
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