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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (21360)	3/26/2000 2:00:00 AM
From: Curbstone	Read Replies (2) \| Respond to of 54805

Mike and Chaz, Thank you for your in-depth responses to my questions about Moore's discussion of Discounted Cash Flow Analysis. Both of you picked up on the 15% thing and my question about whether it was simply an example or an actual formula. Your answers led me to believe that I must not have made myself clear. What was particularly bothersome about Moore's example was his use of the 15% discount rate to be repeated annually over the term of a 10 year investment. Something like a bond, loan, or mortgage (regardless of interest rate) is a static investment and easily lends itself to a simple discount rate analysis and chart as used in the book. But we are not dealing with static investments when investing in high-technology, far from it. In fact, the ebb and flow of ideas, products, markets, politics and the laws affecting all of the above are changing at a rate that sometimes reminds me of navigating the "rapids" associated with Alaska's 30-foot tides. Is Moore really suggesting that we try to apply a standard valuation metric such as Discounted Cash Flow Analysis to companies that (especially of late) have mocked almost every conventional metric except public perception of value? By maintaining this specific shred of conventional wisdom is Moore trying to offer his readers a key to separating wheat from chaff in a stock market gone mad? Sincerely, AM

To: Mike Buckley who wrote (21360)	3/26/2000 4:12:00 AM
From: Juliet	Read Replies (3) \| Respond to of 54805

Present Value of Futuristic Cash Flows... Just wanted to mention the "uncertainty principle" here. Mike wrote: Assume we discount the future value of Company A's cash flow and arrive at a present value of $100 million. Using the same discount rate, we do the same for Company B and determine the present value of its future cash flows is only $50 million. Investors certainly wouldn't want to pay as much for Company B as Company A. There should be an exception to this, and that is when the future cash flow as calculated is a lot more definite and reliable for company B (say, a Gorilla) than it is for company A (say, e-something.com). From my own experience, you would use a higher discount rate for the company whose future cash flows are less sure. And, of course, there is always SOME uncertainty. It's always a fiction. After all, we're talking about the future. It seems--to my pretty uneducated eye--that certainty vs. uncertainty is not properly factored at the moment into many relative stock prices. This, in my view, is a good way of expressing what makes Gorillas and Kings so attractive. With a G&K analysis we are able to factor in a greater amount of certainty (and therefor a lower theoretical discount rate) to arrive at a present "value." It's interesting to think that you could arrive at a real mathematical value for Gorilla-ness in this way... Just a musing... Juliet