To: Karen Lawrence who wrote (272820 ) 7/10/2002 4:44:18 PM From: Neocon Respond to It is not illusory, but it is a matter of exchange value, which is the only way to determine prices efficiently. In a speculative situation, demand depends on the perception that the price will increase, and can be sold for a profit later on. Dividends are too small, except for the rich, to yield much, most of us depend on rising equity values. Now, if demand depends on the perception that one will profit from capital gains, all that is necessary is to observe "investor psychology" in stock picking, and make sure that one gets out before the crisis of confidence ensues over a stock, sector, or the market over- all. Nevertheless, investors are not just lemmings, although they sometimes act the role, but they are also looking at real world features to assess where the greatest growth potential is, on the assumption that equity values are tied to the actual growth of firms. This is generally what leads to the "correction": suddenly everyone notices that the underlying realities do not justify the bubble, and everyone gets scared that there will be a reckoning, thus creating one. Before that, the underlying realities are merely a tool of divination, as the speculator seeks something that will become the Next Big Thing, so that he can make a killing. Obviously, there is a lot of opportunity for chicanery. On the other hand, most investors are not motivated by reading a prospectus, but by looking over each other's shoulders to discover what is hot. That is what happened with the dot.coms: everyone got Internet fever, and were looking for the diamond in the rough, the long shot that would make them. It was a joke: there were no price/earnings ratios, even the most succesful dot.com (Amazon) went for years without posting earnings, and Napster attracted hundreds of thousands of dollars in venture capital as a free service without a business plan. In Doonesbury, Mike starts a dot.com and the joke is made that only by hemorraghing money could he be taken seriously by potential investors. Bad auditing had nothing to do with the main cause of the bear market.......
