Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Options -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (6526)	4/16/2000 3:44:00 PM
From: Poet	Read Replies (1) \| Respond to of 8096

Frank: "Accept safe, above average returns over a long period of time"? Now there's an idea worth hanging onto. <gg>

To: Uncle Frank who wrote (6526)	4/16/2000 5:20:00 PM
From: Bridge Player	Read Replies (1) \| Respond to of 8096

<<Provided you are willing to be patient and accept safe, above average returns over a long period of time, >> I don't disagree with that approach at all, Frank. However, when investors have had extraordinary returns over a very short period of time, as is demonstrably the case in scores of high quality, high techs in the last 18 months (you all know the names, no need to repeat), a problem arises: those aggressive investors begin to believe that the companies they have fallen in love with are invincible. They also begin to believe that those gains are normal, and likely to continue. Believe me, I speak from experience as I have fallen prey to exactly that mindset. The mantra of buy every dip because they will always set new highs works until it stops working. And finally, valuation parameters which over long years of market history have proven to be useful indicators are totally ignored as the momentum players dominate market psychology. I am not motivated to do the necessary math or research, but a look at a long-term CSCO chart shows, roughly, that from the 1994 correction low, the stock price has increased at around 3 times the rate of earnings growth. Perhaps some believe that that phenomenon will continue. I do not. Long term every overvaluation as well as every undervaluation always regress to the mean. In the case of CSCO, that could easily mean reverting to a PE of 40-50, perhaps gradually over a period of years, perhaps suddenly in a period of weeks and months. And for very early buyers and holders of the stock, that would still mean "above average returns over a long period of time". My guess is that CSCO is due for many years of mediocre price appreciation at best. GE took what, 100 years to get to a $500 billion market cap? CSCO did it in 10. I don't expect to see them at a trillion for a long, long time. BP