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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (43722)	6/21/2001 10:14:05 AM
From: Judith Williams	Read Replies (1) \| Respond to of 54805

Mike-- tekboy's post about market timing Strong second! Besides being intrinsically amusing, tekboy points out a missing factor, via Buffett, in the discussion of valuation. So far posts have concentrated on methods of determining/calculating the value of a future revenue stream--with educated guesses on growth rates and income streams. Interest rates (Buffett's third criterion) obviously play an important part in calculating cost of capital. But today it seems as if Buffett's second criterion--what the market is willing to pay for a revenue stream--is getting a haircut. Some of this phenomenon is due, no doubt, to poor visibility and the expectation of lower profit margins or growth rates. But not all. The downward shift in aggregate willingness to "pay up" for the "next big thing" is one of perception and we can only speculate on its duration and its magnitude. This fact seems to me to make "valuation" exercises particularly dicey. Even if we by some magic or diligence can nail a company's future revenue stream and growth rates, we still know nothing about how the market, in the aggregate, will reward that revenue stream. To quantify this perceptual moving target, we might have to take an additional step in valuation exercises. Not only assume worst/average/best case scenarios for the growth rates and revenue streams, but also for the way in which they will be rewarded by the market. --Judith Williams