And I join in the chorus of "Amens"!
Like I said earlier - the valuations of a stock are part market dynamics, and part business realities. You could have a situation where technical reasons exist why a p/e is high and why should you refuse the money?
You know, people have been bagging on AOL for years now - through literally 1000s % of returns! You can call something a bubble - fine. If the bubble bursts in six months from the time of your call - kudos. But if you are wrong FOR YEARS - as the "analysts" have been about AOL - then at what point are you held accountable? At what point do you say "bad call"?
IMO, the time-frame should be 1 year and 1 day - a point at which a buy and hold investor could sell and be eligible for a lower tax rate on his capital gains. By that measure, the CNBC boneheads have been wrong, very, very, wrong about AOL, AMZN, YHOO etc.
Point is, you cannot just look at the p/e. You cannot analyze a company on fundamentals alone - you MUST take into account market dynamics which ultimately determine the price of the stock. After all - you are not buying a business (CONTRATRY to widespread belief), but a stock - which has it's own dynamics, and deservers it's own analysis.
I don't care if it ultimately collapses (and you know, if you say "down" long enough, eventually there will be a downturn - that's natural for ALL stocks, - even a smashed watch is right twice a day - but it is not to the credit of an analyst who cries wolf for years).
All I care about is - are the dynamics driving the price up still there? If yes, I hold. If no, I sell. And I don't care what the reasons are (business, sentiment, market dynamics, war, whatever).
So, when AOL or AMZN hands me money, I'm not so arrogant to point at the p/e and refuse the money. I say "thank you". |
