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Pastimes : All Clowns Must Be Destroyed -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (31322)	5/4/2000 10:56:00 PM
From: BGR	Read Replies (1) \| Respond to of 42523

Heinz, Forget PE and valuation for a second. Forget CSCO too. Let's just concentrate on whether or not a company of CSCO's size can increase earnings by 30%/year for the next decade (which clearly justifies its valuation from a DCF POV). Which was the original topic of the discussion. I know that you would love to go back to valuation, P/E, JNPR, trading, gold etc. but please hang in there for a second. First, I have heard the argument that you make (mathematical, too) from many circles. It is a stupid one. If tech indeed has the capacity to grow by 30%/year, independent of the rest of the economy (we will come back to the viability of this assumption in a second, so no knee-jerk reaction yet allowed) then it will, and after a point it will simply take the whole economy up with it. There is no rule written on stone that the entire economy has to grow by 5% per year. It is a matter of productivity growth, and a understadning Fed. Both are happenning presently. Second, the viability of tech growing at 30% per year for the next decade. It is quite possible, but will take the economy to grow at 15%/year. Now, if the Fed allows that growth, it will happen. Don't forget that a year back 7% growth was considered impossible. But if you do not like these numbers, read on to see a realisitc scenerio. Reality: the whole tech sector doesn't have to grow at 30%, few companies will succeed, while most will fail. The aggregate growth may be 15% just to pick a number, while the winners growing at 30%+. That way, with the economy growing at 7% and the tech sector growing at 15% for the next decade, some successful companies growing at 30%+ is entirely feasible. The million dollar (literally) question is whether CSCO is going to be a successful company. But you admit that you know nothing of the company anyway. Oh, superb! But you have a URL which does some fifth grade level math and concludes that CSCO's fall is guaranteed. So, go ahead, short CSCO! But don't say that I didn't warn you. -BGR.