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To: The Other Analyst who wrote (175)	11/17/1999 11:47:00 AM
From: Chuzzlewit	Read Replies (1) \| Respond to of 214

TOA, The price to book ratio is only used in the model to derive the terminal value. Exactly!!! And therein lies the central flaw. If you follow his examples in detail (e.g., MSFT) you will discover that there are only two value points that are important in determining the investment decision -- the current market price of the stock, and the projected future market price of the stock. Dividends for growth stocks are so small these days that they can safely be neglected. If I project a stock to double in 5 years then I achieve an annual rate of return of 14.87%. If I forecast that the stock will treble during the next five years then the expected rate of return is 24.57%. But since the terminal value is based on a multiple of price to book -- the critical assumption -- the expected terminal value of the stock is anything but accurate. I agree with your comments about the choice of discount rates -- that is not the heart of my criticism. I certainly don't mean to suggest that forecasting is worthless -- quite the contrary! That's why I pay close attention to what industry analysts have to say. It is more a question of how one puts those projections to use. For example, many analysts are bullish on AMZN because they project strong growth in revenues (a very useful bit of intelligence) but their analysis fails when they employ those revenue forecasts to value the stock on the basis of PSR (a very dubious proposition IMO). TTFN, CTC