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Technology Stocks : Dell Technologies Inc.
DELL 117.19+3.5%Jan 22 3:59 PM EST
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To: Michael Bakunin who wrote (116741)4/12/1999 4:35:00 PM
From: Chuzzlewit  Read Replies (2) of 176387
 
Thank you for your response

why trailing earnings instead of forecasts? I do use forecasts. What I should have said is the forward looking P/E. Interestingly, I had slice 10% off of the S&P's prospective P/E based on my big toe.

I don't use peer groups because I think they may be too restrictive, and overly reflective of market sentiment in a narrow sector. Let me backtrack a bit so that you can understand what I am trying to accomplish.

If the market prices securities on the basis of perceived future free cash flows and risk-adjusted interest rates, it's possible to calculate the value of an investment, but it is anything but easy. It's easy to use measures like PEG, but they suffer from one huge defect: They are insensitive to general market conditions and risk. By normalizing on the S&P we at least get rid of interest rate components. That leaves the risk, and there is no good way I know of to normalize on risk. Beta is appealing, but there is mounting evidence that it may be useless. Any ideas are welcome.

I disagree on this point: negative/breakeven earnings will not distort the index P/E if you calculate it properly, i.e. as if the whole index were one security representing complete ownership of each constituent company.

Companies that are losing money are often trading on the basis of the value of their assets rather than the perception of future cash streams. I want to eliminate those kind of effects.

TTFN,
CTC
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