CTC,
Jubak values AOL by comparing it to similar companies, just as people value real estate or cars by using comparable properties (as opposed to valuing it by comparing multiples to growth or cash flow to interest rates). Once you accept that the comparison is valid, the rest of the "valuation" makes sense, indeed, is simply arithmetic. The obvious problem with his approach is the value of the assets to which he compares AOL, also inflated by Internet mania. If the entire sector is inflated by speculation, comparisons produce self-justifying circular arguments, e.g., Yahoo is selling for X so AOL must be worth some fraction or multiple of X, no matter that both are overvalued by traditional methods, which are of course wrong , because it's different this time, and the world of the Internet it the world of the future, not the stuffy old past, and whatever other pieces of intellectual rubbish people throw around to justify lottery fever.
Best,
--Steve |
