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Technology Stocks : All About Sun Microsystems

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To: Feathered Propeller who wrote (16462)	5/17/1999 11:41:00 PM
From: Walter in HK	Read Replies (2) of 64865

JC :“Justification of high P/Es” >> Why would you pay that price for a future stream of earnings at a rate of return that you could achieve by merely investing in 30 year treasuries?<< I think what my logic is trying to say is: How much would you pay for a return this much ABOVE the Treasury rate ? In other words, you compare investing in Cisco (the case when I did this exercise) to investing in US Treasuries, where you get the interest and your money back for sure, at the end. How much would you pay for the difference ? Or for the hope thereof ? Two pots of money. $ 100 000 each. What do you have after 25 years? 1 - $ 100 000 in UST (for simplicity's sake and to make it shorter:par) $ 309 000 in interest (reinvested at 5.8 %) plus $ 100 000= $ 409 000 2- $ 100 000 in Csco, assume @ 100 = 1000 shares. If the P/E is the same at the end of 25 years: 56.58 X 100 000 or $ 5 658 000 A big “If” , but there is no way of getting around having to make assumptions. In fact, it is the assumptions the market is making, that I am trying to fathom. Then decide, how reasonable are they ? If you send me a private message with your e-mail address I will be glad to send my spreadsheet, saving some time. Haim was able to open my 1991 Mac Excel 3.0 with Lotus 123. Walter in HK

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