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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end? -- Ignore unavailable to you. Want to Upgrade?

To: KeepItSimple who wrote (3315)	12/20/2000 8:16:50 AM
From: Mad2	Read Replies (2) \| Respond to of 3543

NO, we can't "all" share in the profits of our greatest companies. Or, ok, lets try. The first sentence is incorrect as we can share in the profits by owning equity. The second sentence is right on as it describes for the most part what has been going on with NASDAQ stocks. Most sensible business people would value a business based upon earnings capability and liquidation value, or ultimatly the DCF out to some future date. How shareholder equity is returned (sale of stock, dividend or liquidation) can be important on a aftertax basis (ie long term capital gain is prefered over the dividend distribution by most). Given the risk associated in equities as compared to "safer" or collateralized investments a premium is assigned to the rate of return used to value the common stock of a enterprise. This is investing. What has been going on with NASDAQ/technology stocks where the stock price is driven by the demand for the stock (where as you say "we are all trying to share in the profits...") has driven the value of these stocks well beyond their values as investments, causing individuals (including WS analysts) to value them according to means reflecting their demand by the public as compared to a reasonable calculation of what they might return to a shareholder in cash at some future point. In the long haul the value of equity is determined by its discounted future cash flow adjusted according to risk in relation to alternative forms of investment. mad2