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

To: Thomas Mercer-Hursh who wrote (44763)	7/21/2001 6:20:22 PM
From: Mark L.	Read Replies (3) \| Respond to of 54805

Picking a discount rate of the S&P LT Return at 11% gives a range... I realize that the thrust of your comment was about SEBL's valuation, but I thought I'd take this opportunity to point out a serious flaw in a commonly-held misconception. Ironically it bolsters your argument about SEBL's attractive valuation, though that was not my intent. I have no idea of what SEBL's LT growth rate will be, but I have some idea of what the S&P's will be. It is virtually unimaginable that the S&P will grow by anywhere near 11% for the next 10-20 years. The assumptions involved in that are so completely unprecedented in US history and would involve such a tectonic shift in world investment, US public policy, monetary policy, and/or inflation that we might just as well figure that world economic growth will be fueled by an infusion of knowledge from some intergalactic visitors. Run the numbers yourself, and I think you'll come to the same conclusion. For example, it was not unimaginable that over 20 years 30-yr bond rates would fall from 14% to 5.5%. It is, however, unimaginable for LT bond rates to turn negative. This is part of the denominator in stock valuation. I just don't see how the confluence of factors necessary for 11% equity growth could occur (without even considering the net redemption of equities by the demographic bulge of baby boomers who will be selling equities to pay for old-age care).