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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: kdavy who wrote (45852)	4/24/2001 1:12:36 PM
From: Bill Shepherd	Read Replies (1) \| Respond to of 70976

kdavy: Re:Is there such a thing as the intrinsic price of a stock. Basic economic theory (at least back when I took economics, which was a loooong time ago) says that the ONLY true measure of the value of a stock is to use the present value of future earnings streams. There are two key variables to factor into such a calculation...(1) the interest rate one assigns to discount future earnings, and (2) the expected growth (or decline) in future earnings. As you might imagine, forecasting either one of these variables is a complex and imprecise science -- just look at how securities analysts flub up. Trying to predict earnings growth rates for a company such as AMAT is indeed difficult. I offer the "dot.com" industry as proof that this valuation method ultimately rules...they never had any earnings, did they? Moreover, rabid optimists were willing to assign (or allow, in the case of market "momentum" types) hugely overstated growth rates to these firms. I submit that we're also seeing these forces at work in CISCO valuations...was it really plausible that CISCO would grow at a 50% rate for the forseeable future? No, dot.coms could not sustain their lofty prices. Regards, Bill

To: kdavy who wrote (45852)	4/24/2001 2:59:14 PM
From: Katherine Derbyshire	Read Replies (2) \| Respond to of 70976

>>According to may way of thinking there is no universal rule to indicate when to buy and when to sell. << Nope, there isn't. The intrinsic value of a stock is the share of the company's net assets that it represents. One of the things that takeover artists and value investors look for is a disconnect between the value of the tangible assets and the value of the stock. The price of a stock represents some combination of the intrinsic value of the company, how much that value is expected to grow in the future, and market psychology. The arguments about investment approaches boil down to arguments over how to measure these factors and what weights to give them. >>Don't hold a stock in a downward spiral. << What's your horizon, though? The great crash of 1987 is a relatively minor blip in the context of the Dow's last 50 years. The 2000-2001 bear market will look similarly insignificant 25 years from now. Buy and hold may not be the way to maximize your gains, but if it lets you sleep better, maybe that's a fair trade. Katherine