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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Ian@SI who wrote (9730)	4/19/2001 2:55:43 PM
From: John Cuthbertson	Read Replies (1) \| Respond to of 10921

Gottfried and Ian, Just wanted to respond to some of your comments. Calculating the portfolio weighted average of fundamental characteristics like the P/E ratio is a quite common and useful practice in portfolio management for analyzing and comparing portfolios. This can apply to an index composite portfolio as well as to any other portfolio. Of course, you may consider this irrelevant if the portfolio in question is of no interest to you! Whether the NASDAQ Composite is an interesting or relevant portfolio to analyze is, I will cheerfully concede, a matter of opinion. Certainly, people seem to be interested in the price performance of this particular portfolio! And, as Richard pointed out, people do effectively trade it through derivatives and such. Perhaps the question of whether it makes sense to analyze NASDAQ stocks as a group "just because they trade on the same exchange" really depends upon whether they also tend to have other characteristics and behavior in common when compared to other groups of stocks (e.g. NYSE stocks). Actually, although of course there is lots of variation, statistically most NASDAQ stocks do indeed show a tendency to behave as a group. There are also some interesting exceptions to the rule; for instance, there are stocks that trade on the NYSE that tend to behave more like NASDAQ stocks, e.g. MU. In any case, analyzing the NASDAQ as a whole could hardly be rightly called "erroneous." As to the value of P/E as a valuation factor, yes, P/E by itself is really never enough to assess the valuation of a stock or a portfolio, although that doesn't imply it's "meaningless." And there are certainly situations where current earnings doesn't tell you much at all. After all, current earnings is really just a starting point for estimating what you'd really like to know, which is future cash flows. However, to say that current earnings is irrelevant for the whole NASDAQ -- a set of thousands of stocks valued at a few trillion dollars -- well, that begins to stretch my credulity! ==John C.