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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Venkie who wrote (33415)	3/14/2001 11:21:51 AM
From: SecularBull	Read Replies (1) \| Respond to of 65232

I'd rather buy ITWO. ~SB~

To: Venkie who wrote (33415)	3/14/2001 11:31:43 AM
From: SecularBull	Read Replies (1) \| Respond to of 65232

The Capitulation of the Press By Pat Dorsey Morningstar.com Wednesday March 14, 6:00 am Eastern Time Yesterday morning, while doing my usual morning ramble through various financial Web sites, I noticed the following series of headlines on one site: ``Mulling How Low Tech Stocks Can Go,'' ``Why Buying Tech for the Long Haul Makes No Sense,'' ``Pull Out of Tech Positions--It's Not Too Late!'' and ``Time to Say Goodbye to That Struggling Tech Fund?'' This is interesting, to put things mildly. Just as last spring's tech feeding frenzy in the financial media signaled a huge top in the tech market (remember when every magazine cover featured a smug, tech CEO, fat on in-the-money stock options?), I wonder whether the current barrage of negative press surrounding tech stocks signals some sort of a bottom. Investing pundits often blather about how they look for ``capitulation'' when they try to decide when a sector has reached a bottom, and what they're usually talking about is trying to figure out when investors just completely give up on a group of stocks. Supposedly, this is a sign that the group won't go any lower, because expectations can't get any worse. Perhaps we should be looking for capitulation from the financial media, instead of from investors themselves. After all, Barron's sure did a great job calling the bottom in Berkshire Hathaway in late December 1999 when it ran a cover story titled ``Warren, What's Wrong?'' and subtitled ``Does his style of investing not work in today's market?'' At the time, Berkshire B shares were changing hands for about $1,716 apiece. Although they subsequently dipped as low as $1,400 at the height of the Nasdaq's top in March, Berkie B's are currently trading for about $2,300--a nice 34% return since the Barron's article appeared. I'll take that over any 14-month time frame you care to name. Being contrary is tough, but it usually pays off in the end. I seem to remember a lot of people moaning and groaning about their financial funds about this time last year, and that category is up 38% over the past year. I doubt tech will come back as strong, but if the financial press is any indication, it might be a better time to be compiling tech shopping lists instead of running for the exits. Bad Math From the front page of yesterday's Wall Street Journal, in an article discussing the high valuation of stocks relative to their historical levels: ``Nasdaq stocks would have to drop almost three-fold just to get back to their average [price-to-earnings ratio] for the past 15 years.'' That would be a heck of a drop, wouldn't it? I guess that means that a stock trading at 30 would have to hit negative 60 or so, which sure would hurt. It would also be mathematically impossible, but that's okay. Never let basic arithmetic stand in the way of a good line. In a similar vein, I recently read an article that looked at the October 1998 prices of a number of big-cap Nasdaq stocks and asked whether the shares would pull back to those prices. ``Mathematically, it seems possible that that Cisco could drop from $18 and some change to $10 [Cisco's October 1998 low].'' Sure, it's mathematically possible that Cisco (Nasdaq: CSCO - news) could become a penny stock--but this kind of reasoning makes absolutely no sense without taking the associated-earnings per share into account, since stock prices aren't determined in a vacuum. (Not anymore, at least.) For what it's worth, Cisco currently trades at exactly the same trailing price-to-earnings ratio as it did during the October 1998 low. Dell (Nasdaq: DELL - news) trades at half its late-1998 trailing P/E and Sun (Nasdaq: SUNW - news) trades for a fairly modest premium to its October 1998 P/E. Sure, all of these stocks could go lower, but they'll do so because either investors decide to pay a lower multiple of earnings, or the earnings themselves don't grow as quickly--not because the share price crosses some arbitrary barrier. Etc. In the ``just how long is 'long-term,' anyway?'' category: A managing director of Goldman Sachs (NYSE: GS - news) was quoted in a recent Bridge News story as saying the following about tech stocks, ``So don't abandon the ship. In the long term (12-15 months), it is a great place to be in.'' Boy, I'd hate to see Goldman's definition of ``short term.'' One last funny from my Tyco-covering colleague Rob Plaza; he proposed the following headline for a story we ran yesterday about Tyco's (NYSE: TYC - news) acquisition of CIT Group(NYSE: CIT - news), which our editors (perhaps wisely) killed: ``Tyco to CIT: You Complete Me. Latest acquisition makes Tyco a mini-GE.'' I laughed for a long time when I read this one.