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To: Voltaire who wrote (5344)	3/4/2000 2:11:00 PM
From: stockman_scott	Read Replies (2) \| Respond to of 35685

V: Here's an interesting article from The Washington Post Business Section... washingtonpost.com <<Finding Profits in Disruption By Fred Barbash Saturday, February 26, 2000; Page E01 The buzz phrase among market analysts these days is "disruptive technology." The term, coined by Harvard Business School professor Clayton Christensen, refers to a new order of business that threatens the old. The more it threatens, the more people want it. That's because one business's threat is another business's future. It's the pursuit of disruptive technology by investors that's driving the markets today. And it's proving disruptive. The Dow Jones industrial average is down and the Nasdaq composite index is up this year, though both were down yesterday. People are piling into technology stocks and ignoring the others. "Divergence," which really began about 14 months ago, now seems a permanent fixture. Some people are deeply worried. But should they be? I don't know. Probably not. It's happening because a new generation of investors is doing exactly what they were told: Investing in the future. The problem is that the future is not quantifiable. No ratio has yet been invented to tell us whether today's astronomical stock price will bear any relationship to a company's future earnings. And that's disruptive, too, because it flies in the face of everything we were taught about what is and what isn't a good investment. The reason the old measures, such as price-to-earnings ratios, are being slighted is that they don't work anymore. As the Economic Report of the President suggested, the old metrics do not take account of "intangible capital," intellectual property, patents, creative energy. And that's precisely what disruptive technology is all about. Some investors have disregarded the old ways for several years. Others heeded warnings that the bubble would burst, and were rewarded by watching their friends get wealthy. Many of them jumped in, too, compounding the divergence. I recently went to speak to a group of more traditional investors, very smart investors, and quickly realized we were speaking entirely different languages. They were talking about P/E ratios and multiples of earnings. I was talking about stocks that had grown 700 percent and suggesting they still were good buys. They looked at me as if I were from another planet. It was our own little "Hour of Babble." All this can be stated more crudely. The reason everyone's piling into tech stocks is that it's darned near impossible to sink $10,000 into a stock that might appreciate by 5 percent or 10 percent annually when confronted by hundreds of alternatives that rise that much every month. Should investors sacrifice their net worths on the altar of market breadth? Would you? Should we worry? I don't know. The narrowness of the market does not seem to be hurting profits overall, which were up by about 20 percent in the last quarter, stagnant stock prices notwithstanding. I do know that there are a lot of myths out there feeding the hand-wringing. One is that growth investors are pouring all their money into companies with no earnings. That's not true. They are indeed pouring some money into companies with no earnings, such as biotech firms that have yet to sell anything to anybody, but they're also putting money into extremely profitable companies. And look at Wired magazine's new economy index, filled with profitable companies such as FedEx Corp., DaimlerChrysler AG, Walt Disney Co. and Dell Computer Corp. The index is up 24 percent. Speaking of indexes, there remains a serious question as to whether the Dow reflects anything worth reflecting upon, other than the 30 stocks that compose it. Try as Dow Jones has to update it to include new technology, it doesn't. That suggests the best short-term psychology: If you don't like the Dow, don't look at it.>> --------------------------------------------------------- Enjoy the weekend. Regards, Scott