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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: techlvr who wrote (127200)	2/26/2003 10:56:24 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 152472

When I look at my balance sheet, I count the market value of my shares, not the earnings per share value of the stock i would not so breezily dismiss huey's point. it sounds to me like this "truth" (ignoring EPS value and focusing only on what Buffett calls "quotational value") is what you have found to work for you as an individual. but i think the point that huey is getting at is more an aggregate look at what is going on in terms of corporate profitability (using QCOM as an example). such perspectives are worthwhile because what may be temporarily true on an individual level is not necessarily true at the macro level. just to give a simple example, it is true that certain individuals have outperformed the market through active investing. this is true on an individual level. these individuals have personal "proof" that active investing has worked in the past for them. however, on the macro level, it is impossible for investors in aggregate to benefit from active investing. this is logically obvious from the fact that in the aggregate, investors are the market and thus will have the market return minus costs. costs are higher for active investing, so active investing reduces returns in the aggregate. likewise, in my opinion, there are pockets of time where market returns can be quite irrational (think $8 billion market cap for theglobe.com), but these pockets are smoothed out in the long run into rational returns. rational returns in the long run are essentially equal to the market's dividend yield, plus real GDP growth, minus a dilution factor (options and other equity issuances), and minus costs. this has been the case throughout recorded market history, and is likely to be the case over the next century as well. this may be thought of as the "aggregate" or macro picture. conversely, there is the short-term return, such as that of 1995-2000, or even the extraordinary bull market of the 1980s and 1990s. investors, due to their tendency to rely on recent returns (i.e., 20-yr past bull market, while ignoring the horrible preceding decades), are focusing on the micro pockets of abnormality. likewise, when you focus on where the stock price is at as opposed to what the stock's earnings are, you are focusing on a micro-pocket of abnormality. this pocket may persist long enough for you to retire, but in the aggregate it is irrational to assume that EPS value is irrelevant to whatever share value exists on your balance sheet. only the shadow knows if this will matter for you personally, but over the next 100 years, it will matter a whole helluva lot to investors in the aggregate. so one question is: do you really want to ignore the rational issues that will matter for stocks as a whole in the long run? or as i like to say: how lucky do you think you are?