Sorry, ED. Perhaps I was a tad harsh, but the point is this: GZ simply stated that the Naz would get to 8500 before it sees 850 again (and wasn't that in response to someone else saying it would hit 850 before 5000 - and with no justification either - shame on them). In other words, one day, unless the world does come to an end, it will make it to 8500 and will never go as low as 850.
Which part of that needs justifying?
The first? OK, how's this:
Markets, in the long run, trend higher. Therefore, the likelihood of it eventually reaching 8500 is the same odds as those in favor of modern civilization surviving another 10 to 20 years. A return of 10% per annum (the Naz Composite's average annually gain for the last 30 years and two months since the composite was created, inluding the 60%+ decline of the last year) from today would take the Naz to 8500 in 14 3/4 years.
Doesn't seem so far fetched now, does it?
At 13%, BTW (about what it's done each year from August '82 to the recent lows - a low-to-low cycle over almost 19 years), it takes only 11 1/3 years and at 15%, less than ten.
The second? Well, even though no one here has really made a good case for why it should go to 850 (or 500 as many here believe), I will offer this:
1. Nearly all of the hype based internuts (the ones that burned tens or hundreds of millions on "brand building" and forgot to build a company) are gone, leaving a relative few former internet bubble stocks still in existence and most at such low market caps now that they would have little further effect on the Naz even if they went to zero. Many of those surviving, BTW, will actually mature into profitable companies (you don't think the internet is going away, do you?).
2. The rest of the tech stocks (computers, communications equipment & services, application/enterprise software, whatever - those excluding the e-tailers, portals, B2Bs, etc. in 1 above) that participated in the bubble have, for the most part, come back down to earth. Of the former leaders, CSCO has one of the higher PEs and they were below 40 just a couple days ago. Many of the others are in the teens. With earnings contractions in techland this year, PEs are likely to expand, not contract further as valuations are based on long-term earning potential and not just on current year earnings.
3. Then you've got all the non-tech Naz stocks. They make up a bigger portion of the market-weighted Naz now, BTW. Are all the financial services, energy, retail, consumer products, capital goods, business services and other companies that make up the rest of the Naz going to fall in half from here? I don't see why they should. I see many mid-teens and single digit PEs among Nasdaq stocks to balance out the normal batch of emerging growth companies with no earnings. Remember, not all companies can be valued on current earnings and the Nasdaq, historically, has run a much higher average PE than the S&P, Dow or NYSE as a result of all the emerging growth companies with no current earnings (not all technology either).
Am I saying 850 is impossible? Of course not. If we get hyperinflation, negative economic growth, higher taxes, higher interest rates, breadlines, and riots, then we might even pass 850 and hit 500. What are the odds of such a collapse of western civilization?
I'd say the odds favor civilization lasting long enough for us to reach 8500. Ten years, I'd say. That's plenty good enough for me to take the risk of the doom & gloomers being right, so I'll just keep buying good companies at bargain prices.
Bob |
