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Technology Stocks : Lucent Technologies (LU) -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (9077)	8/9/1999 2:55:00 PM
From: elmatador	Respond to of 21876

To Chuzzlewit: Boy, and we engineers thought we were in trouble!!!

To: Chuzzlewit who wrote (9077)	8/9/1999 11:12:00 PM
From: John Malloy	Read Replies (2) \| Respond to of 21876

My basic approach to valuing a stock is to discount the cash that flows into and out of an investor's pocket -- dividends, the stock price when he sells, income and capital gains taxes, and broker's commissions. I don't use reported earnings or cash flow, because neither flows into an investor's pocket. Cash flow has another disadvantage -- only that part represented by reinvested earnings makes the company grow. The part represented by depreciation doesn't contribute to growth; it merely restores stockholder equity to the level it had before the depreciation was deducted. I use a mathematical model to describe how a firm grows; my rule is to keep the model as simple as possible. I don't worry about games the firm might play with stockholder equity because investors play counter-games when they adjust the price/book ratio they are willing to pay. Whatever game both play, the stock price is always equity per share multiplied by the price/book ratio. I have a chapter in my book showing how to use the Monte Carlo method for handling risk. Although Monte Carlo studies are ideally done with a thousand random outcomes on a computer, I find results almost as good with as few as five random outcomes, which can easily be calculated by hand. John Malloy