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To: thesmay who wrote (8593)	6/28/2001 11:30:12 PM
From: Jacob Snyder	Respond to of 10934

re: Why do you think valuations will stay low even when the economy starts firing on all cylinders? I tend to be a pessimist. If I'm surprised, I want the surprise to be of the pleasant kind. I assume all apples have worms in them. If I haven't found the worm yet, that means I haven't looked hard enough. If NTAP goes back to a triple-digit PE, great, I'll be along for the ride. But I'm not going to buy, until I can do so at a price where I'll get a decent return, even if valuations never go back to those levels. "Margin of Safety", for me, means making money even if the future is a mediocre macro environment, an industry that grows at the low end of expectations, and a company that executes adequately (but no better). Because, frankly, those PEs for CSCO and NTAP and all the Gorillas since 1995, are all irrational. I've never understood why any company growing earnings at 20-30% a year, deserves a PE of 50-200. I know, lots of companies (even now), trade at a PEG >> 1. Currently, the PE of the S&P 500, using trailing earnings, in almost 30. To me, that just means the bubble hasn't fully deflated yet. And NTAP is such a young company, most of the history (the PE range you're looking at) happened during the Bubble. Some say the Bubble started in late 1998. Some say it started in 1995. You can't use the Bubble as your baseline. Much of the earnings of EMC, NTAP, CSCO, JDSU, etc., for the last 5 years, has been based on massive business investment and infrastructure buildouts by their customers. And much of the money for that was borrowed, by telecom and internet companies especially. Credit was way, way too easy to get. Many of those companies will never generate the cash flow to pay back their investment. A lot of that money will never be repaid, which means the historical results you're looking at, for years past, cannot recur. Even when the macro situation gets better (no recession risk; no inflation risk), even after all the restrucuring and writeoffs are done (2002?, 2004?), growth rates will not go back to the rates seen in 1995-2000. That growth was based on a credit bubble. Also, I'm buying LEAPs. The extra risk of LEAPs, compared to stock, means I need an even bigger margin of safety.