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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: GVTucker who wrote (62399)	11/11/2002 5:13:55 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 77400

Contrary to your theory, when a company starts to report options as an expense on the income statement, there has been a modest positive effect due to the market's perception that management has better credibility there really hasn't been enough time to say this conclusively. most of the option stuff has just gone on in the past year. the ink is barely dry! let's wait 5 years. obviously, all companies can't be more credible than average, so if all cos report option expenses, that will mean lower prices. Using your logic, any company that started to report options as expenses would see an immediate stock price drop due to the lower reported profits firstly, it's mainly old-line cos that have chosen to expense options, and they are not nearly as addicted to options as the tech cos. (notice that a lot of these cos say options will shave a penny off earnings this year or something equally innocuous.) secondly, all the cos that i know of who are opting to expense options are taking a "gradual approach". so you will not see the full impact on their earnings for some years to come. if tech cos really agreed with you that their stocks would go up and there was no downside to expensing options, then CSCO would be first in line to tout expensing options! options are a real expense, as more and more investors are realizing. add those expenses to the pension problem and the SPX could easily be cut in half. 300 is not at all out of the question if you still believe stocks get cheap in bear markets. look at the current core earnings of $18. slap a multiple of 7 on that (like the early 70s) and you've got the SPX at 126. i think that's unlikely, but then again, in the fall of 1999 did you think the Nasdaq deserved to double again by March 2000? even if one generously assumes $25 or so of normalized, non-lying earnings, and a historical 14x multiple, that puts the SPX at 350. or assume $35 based on the historical relationship between corporate profits as a percentage of GDP, and a 14x multiple gives you 525. round and round she goes, where she stops, nobody knows... but i can guess the direction :)

To: GVTucker who wrote (62399)	11/11/2002 6:34:08 PM
From: hueyone	Respond to of 77400

The institutional investors that for all practical purposes determine the pricing of stocks are already fully aware of the issues that you cite. Changing the way that profits are being calculated would have zero effect on a company's operations. The few investors that might be currently deceived wouldn't have much of an affect at all. Had we had better disclosure, I don't think companies like SEBL would have ever reached a ridiculous, split adjusted valuation of $101.50 per share in December, 2001. According to my calculations, SEBL has lost money five straight years on a GAAP basis adjusted for stock option expense using Black Scholes. Sure, a lot of institutions understand the problem, but a lot of them have been willing to wink, wink, play the game and go along with the phony reported numbers as long as they believe a certain percentage of the rest of institutions and investors will go along with the phony numbers as well. Lately, however, it is getting more and more risky to hold or trade issues on the basis of suspect, reported numbers. I also will go one step further than Greenspan, and instead of saying companies attracted capital that "probably" didn't deserve the money anyway, that I am certain that many companies that didn't deserve the capital attracted capital. In my opinion, never before in history have so many mediocre and less than mediocre business managers been rewarded with so much for accomplishing so little. And in a larger sense, this is an inefficiency in the U.S. economy that probably should be corrected. Ideally, capital should be flowing to most well run, profitable, productive companies if we wish to maintain a strong economy and country---in my opinion. Changing the way that profits are being calculated would have zero effect on a company's operations. Options have been handed out like candy without regard to outside shareholders' interests precisely because companies are allowed to hide this expense in the footnotes of the 10K. If companies had to expense stock options on the income statement, there would be significant changes in the way many companies, especially option laden tech companies, put together their employee compensation plans. Ultimtately this would result in more realistic long, term investment opportunities for outside investors. JMO, Huey