Good post, John.
With one important distinction: in the future, rather than now. There is no uncertainty in what the market is willing to pay at the moment a trade executes. What is uncertain is the value at which the reciprocal trade will occur. Particularly for those shares where profit or loss rests entirely on some future-person buying them for more than we paid. We can discuss TALC until we are blue in the face, but somewhere along the lines we must also contemplate the primary criteria for entering an investment: profit. And our share of the expected value. Or quite precisely, what some future other person will perceive as their share of expected value.
I am not in total disagreement except for the utmost importance of TALC. That is what the entire game is all about - so I would never, ever disregard it because what happens 5 years from now in terms of a TALC will start to be discounted in the CAP/GAP at this point. Therefore, discussing it until one is blue in the face is required. Of course, the other side of looking at that is indeed examining if the companies profits and earnings over such a time period will create the appreciation of share price as shares are accumulated. Discussing both the possibility of a discontinuous innovation that usurps the TALC of a current technology as well as nailing down 5 years of earnings leaves plenty of room for error and "misjudgement". Somewhere between here and there, the companies, the customers of those companies and the market will catch wind of what is and what is not. Either one is comfortable with that risk or one is not comfortable with that risk.
So gorilla or king or chimp or pebble, before purchase it is imperative to look at the environment in which expectations are being set.
Yes. In terms of the gorilla, expectations may have been set too low. It wouldn't surprise me to see earnings in 2002 and 2003 that surpass current expectations for some of the gorillas.
Let us bring some objective facts onto the table to support our speculative but opposing hypotheses. Yes, I am guilty of cherry picking a source that supports my conclusion. Feel free to do the same. But we should joust with facts in so far as it is possible to do so. There are many sources I could pick. This, for example, is a very telling recent illustration
yardeni.com;
Yes, I believe I was the first to post links to Yardeni's moving targets.
Most notable is the divergence between tech and non tech, obvious since 1999. Whatever our mysterious cause, it is driving non-tech well above but slowly back towards historical levels, while driving tech through the roof.
I will post some comments from Geoff Moore addressing a portion of thought that I feel contributes to the discussion. As the technology sector works its way through the process of the haves and the have nots - we might actually see the gorillas emerge on the stronger side in terms of winning bids and customers for the sake of security of knowing they will "be around". The same, to a lesser degree, could be applied to dominant companies in "non tech" where the customers derive a certain amount of comfort by purchasing from a company that will be there tomorrow as the excess is worked out of the system.
Here were Geoff's recent comments in regards to the enterprise market:
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That all said, what I really wanted to reinforce is that I believe 2002 will be THE year of the incumbent gorilla, specifically in enterprise markets. People do not want to add company risk to all the other risks they are taking when they buy enterprise software next year, same with infrastructure, etc. So IBM, Microsoft, Oracle, SAP, Siebel should all have string years in my view.
I also believe that the market as a whole should make a good recovery from the bottom, which I think we well and truly hit this fall. If you recall, one lesson of the past two years is that the tornado is not so interesting a phenomenon in the midst of a recession. But when the recession passes, it reasserts itself.
What all this means is that in my view conservative Gorilla Game investing has never had a better chance than right now.
Best wishes,
Geoff
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If such a path were to unfold, then of course it would bold well for the larger category leaders and not bode well for the smaller based customer list companies. Of course, time will tell if this unfolds enough to the point that we see it in the profits and earnings of those leaders while the profits and earnings of the other companies dwindle and adjust that divergence you speak of for the overall "tech" market.
There is a theory that boomer driven excess investment is flowing into the market, which would account for an upwards bias across the investment spectrum. Furthermore, it is reasonable for these tech-literate and well read boomers to be following best-seller investment literature and chasing the expectation of outsized returns in tech. Which would be an entirely rational expectation given past performance. Moore (along with other luminaries of his genre) published such an observation in 1999. Back when the price of tech earnings tracked non-tech earnings quite closely.
That's a plausible contribution, but not the only. The growth of the mutual fund industry - including those that specialize in sectors - has contributed. The growth of investing in other countries in recent years that was not an option two years ago, four years ago or six years ago. I speak to that in regards to what I have seen personally here in Austria and Germany since 1995. I wouldn't narrow the concentration just to the US boomer generation - nor would I limit the excess to being technology specific.
Thus (and for a host of other reasons), whilst it might be true, I am having a very difficult time swallowing the a lot of other indicators are in line assertion. Which sounds more like the buzz being churned out by the wall street marketing machine. Seductively believable because we want it to be true. I mean, if the buzz of recovery is true, then any tech equities we hold are due to go more up. Vindicating those who held through what could then be brushed off as "the blip and the dip". Wouldn't that be sweet?
I apologize for not being more specific in regards to which indicators I was making reference to this particular market move as compared to the spring of the January moves. Copper, energy, transports, paper, the CRB, money supply, etc... have all converged to create a more "engaging" backdrop to this move than the two previous moves. That doesn't mean it is all correct, but it is more supportive than the previous two market moves were. If this is not the correct convergence of indicators, then eventually it will be at some future point in time.
Something doesn't smell right to me. Of course, it may be cheese curds, or wind blown urine ;) It's hard to tell for sure, eh? But I suspect macro factors at work.
Those were cheese curls, not curds. I'm not sure which one would be better to hurl at the television. ;-)
There is a growing appreciation that TALC alone, independent of share price (and more importantly, future valuation considerations), is a dangerous basis for an investment decision. And as was opined recently on this thread, it is the macro environment that dominates valuation considerations.
Although I respect the challenge to the TALC theory, I think that it deserves a longer period of market dynamics to be disproved as being a dangerous investment decision. With established companies like Intel, Microsoft, Oracle, Cisco, IBM, Siebel and others to study, it will be interesting to see how the theory is challenged when we look back on it many years from now.
Based on my sense of the macro environment, I believe that we will see prices that make September's lows look expensive. Within the window where TALC alone would suggest optimum profitability.
We shall see. Price/volume indication and the ability to react to it is always wise.
BB |
