Mr. Forthright,
Are you saying we should continue to use "traditional" models in emergent sectors?
I think if you used traditional valuation methods on such a competitive, evolving industry – at a pace yet unmatched in history – could (repeat, could) cause a lot more swings in stock prices then we're seeing now.
Think about how fast Microsoft turned around the market. For so long WordPerfect owned the word-processing world. Only the true followers of Microsoft (of which there were few) used MS-Word. Then in a whirlwind of marketing Bill Gates' little company took over, pushing his whole suite of office software.
Think about hardware. Macintosh or PC? Intel Pentium I, II, then III; MMX technology. Hardware manufacturers all vying. The communications around it: ADSL, xDSL, @Home, ISDN. Highly competitive and no loyalty. The next generation is what it is about. And who knows who will have it.
How can you valuate when one year the EPS might be nil and the next year it could be $10? Or quarter over quarter?
At least now we are looking into the future, looking past a few bumpy quarters to a longer-term goal. It would have been prudent to buy Microsoft before the whole "Start Me Up" launch of Windows 95. But to say their shares at that time were worth SO MUCH LESS than the current US$174 would be ridiculous! Wouldn't you have paid more than US$12/sh in March 1994 knowing that they could take the software industry by storm? Just a small US$12,000 layout for 1,000 shares would net US$162,000 in five years. That's a lot more than some make in a 9-to-5 job.
Who is to say that Bid.Com doesn't have that potential? Some thought Microsoft didn't have a chance against WordPerfect. Well, I guess there was an upset.
And tomorrow? Maybe the new guy in town will get a Rolling Stones song too and everybody turns to the "latest and greatest". Microsoft could see their sales drop off, and a US$174 share price could suddenly become US$12 again. However, I think with non-traditional valuations you wouldn't see a drop that fast; the decline would have already started as soon as the next up-and-comer entered the market (perhaps with a EPS of nil). Anybody want to challenge that?
Denise.
Phew, that was way too long of a "coffee break". |
