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Technology Stocks : Advanced Micro Devices - Moderated (AMD) -- Ignore unavailable to you. Want to Upgrade?

To: chic_hearne who wrote (5065)	8/15/2000 10:44:26 AM
From: f.simons	Read Replies (2) \| Respond to of 275872

>>I know a lot more than I did 5 months ago. I was a naive punk 5 months ago that only thought the market went up.<< Chic- Now that you are no longer a naive punk but a sophisticated, knowledgeable investor, can you tell us how AMD is going to escape the holocaust that is apparently going to descend on all those other tech stocks? Frank

To: chic_hearne who wrote (5065)	8/15/2000 12:06:12 PM
From: pgerassi	Read Replies (1) \| Respond to of 275872

Dear Chic: Re: Stock Market Valuations I agree with you. Stock market valuations are too high given the current and future outlooks for most large cap stocks. It reminds me of the tests run by some universities business school to look at stock market interactions with one stock. This stock was an oil company with known reserves of 100 million barrels that will pump 10 million barrels a year at a starting profit of $10 a barrel rising $2 a year. The stock price at the IPO was $100 a share for 10 million shares. Each quarter, the profits were paid to the shareholders of that day as dividends. No commissions were charged on stock purchased or sold. 20 average (how do you get average?) people then bought and sold the stock trying to maximize their profits. Now the researchers figured that the stock price would fluctuate but stay fairly close to the current value of the oil in the reserve. "Fat Chance!" The stock price began according to the theory, but soon speculation ran rampant. The market cap of the stock reached 2 to 3 times the total possible value of the oil in the reserve at times followed by collapses where the stock was half of the value of the underlying oil. This tendency continued till the very end. All runs with different groups ended with the same results. Now this turned out to be a huge shock to those aspiring to the fiction that markets tend to the underlying value of a stock. Those that did best in the tests, tended to look before they leaped. Those with the experience of a few such games, also tended to do better on average than newcomers. Only when people who did better than average were used, did the outcome began to approach reality. The volatility and boom bust cycles still existed, but at a reduced ratio to average. However, relating total market cap to GDP as a ratio may be a good measuring stick, but a ratio of 1 to 1 is not the ideal total market cap to GDP ratio. Since market cap and GDP have different time delays, gains, and responses, it oscillates around a value. This value is low for extraction industries like mining and high for things like R&D labs. Thus the ideal value for the US is different than the ideal value for a country like Nigeria (possibly proportionately related to the productivity of the country as a whole). This ratio peaks after the start of a recession and bottoms after the start of a recovery. All this tends to make it a good measure but just one of the inputs required to make good decisions. Thus, the US having a ratio of 1.5 may be ok at our level of productivity, while Japan tends to 0.75 because their overall productivity is half of ours. Besides this value peaks before a recession anyway and it does not seem like a recession is coming any time soon (baring some unforseen circumstances like usual). Pete