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

To: Stock Farmer who wrote (45971)	8/29/2001 3:21:04 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 54805

John, we agree on the essentials, but from an investment point of view, it is necessary to get some handle on the value of IP not already on the books in some form (e.g., good will). Otherwise, it's difficult to know if the relationship between market price of the shares and book value is reasonable. Book value is not the same as intrinsic value, which is really the value that needs to be calculated. Using some examples, I think QCOM has very high intrinsic value, but the book value of $6.78 (a shade over 10 percent of market value) understates the value of the investment. The only conclusion one can make from looking only at book value is that the company has a very high return on equity. Sure it does, because the intrinsic value of the IP is for the most part not included in the book value. AMZN goes the opposite direction. Here's a company with very little IP, unless one gives some value to brand name recognition. But in terms of software or other things that one generally associates with IP, there isn't much that is exclusive to AMZN. Certainly there isn't enough IP to compensate for the negative book value. There's no doubt in my mind which stock I'd prefer owning. But maybe the contrast is too extreme. Art

To: Stock Farmer who wrote (45971)	8/29/2001 4:01:38 PM
From: Seeker of Truth	Read Replies (1) \| Respond to of 54805

John I agree with you 100%. Some companies spend a lot of money on research and blame their reduced profitability on that but today's profitability depends on yesterday's research just as tomorrow's profitability depends on today's research so this has to be a regular expense. The acquiring of new IP should be as ordinary as upkeep of a factory. Malcolm