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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: EepOpp who wrote (48661)	4/29/2000 8:40:00 PM
From: jbe	Read Replies (1) \| Respond to of 99985

EepOpp, your two cents were appreciated. As far as my own investing "strategy" is concerned, I will continue to buy Company A's for my individual stock portfolio, while leaving it to the managers of the more adventurous mutual funds I own to buy the Company B's. But I regret that I gave the impression I was looking for investment advice. I was really trying to raise a question about methods of valuation. It is my understanding -- correct me if I am wrong -- that discounted cashflow analysis and similar methods were developed in order to determine how the rate of return -- measured in dividends -- of a particular stock would look in comparison to the rate of return from an alternative investment (usually a T-bond). But then companies stopped paying dividends, or cut back on them. So another "rate of return" had to be substituted -- price appreciation. That is a very, very different yardstick: you get dividends only if you hold on to the stock; you get the benefit of price appreciation only when you sell the stock. Furthermore, it is based on the assumption that The Market (i.e., investors) will reward "virtuous" companies by buying their stock, and ensuring that the real rate of return, in terms of price appreciation, will more or less equal the theoretical rate of return (that is, the rate of return stockholders in such companies "deserve"). In fact, it does not work out that neatly. Nowhere is virtue always rewarded; and even if the wicked do not inherit the whole earth, they do manage to latch on to a good piece of it. Methods like CFA are excellent for determining which companies are "virtuous" -- i.e., well-managed & profitable -- and likely to stay on the path of virtue. But I doubt they can tell us whether investors will actually pay up for stock in them (as opposed, say, to stock in "wicked" companies). jbe P.S. Can't help asking....What kind of an opp is an eep? ;>)