It was tonights show - thursdays the 11th. RE captial gains, Cramer did say on his show tonight he had some friends buy some stocks march 99, and when the fundamentals changed he told them SCREW the capital gains fears - bail and take your profit and pay the devil his due, but they were so fearful of capital gains taxes they held right through the crash and lost all thier gains - he said NEVER worry about taxes and capital gains if the fundamentals are against you - he meets too many that put this as too high a priority.
RE GOOG
internetstockblog.com
Tuesday, June 21, 2005
Hussman takes another shot at Google (GOOG)
John Hussman, manager of the Hussman Strategic Growth Fund (ticker: HSGFX), took another shot at Google (ticker: GOOG) in his latest weekly letter. Extracts:
...we know that the highest price/revenue ratio for any stock with revenues over $100 billion is currently 2.4, that stock being General Electric. We also know that the two highest price/revenue ratios, among all stocks with revenues over $20 billion, are 6.9 and 5.1, for Microsoft and Cisco Systems, respectively. (Google currently sports a price/revenue ratio of 20.5 on $3.8 billion of revenues.)
...we know that total global advertising – television, radio, magazines, newspapers, billboards, and so forth represents about $350 billion at present, and is projected to grow about as fast as the global economy in the future, about 6.5% annually, according to PriceWaterhouse Coopers.
Total internet advertising is currently about 6% of that total, but let's project that 15 years from now, the internet share booms to 20% of all global advertising. Let's also assume that Google gets 75% of it. That's right, baby. 75%.
That puts Google's revenues 15 years from now at $135 billion a year, which is close to those of GE. Let's also assume that stock market valuations remain at a permanently high plateau, and that Google gets awarded the same rich price/revenue ratio of 2.4 that the market awards to GE, which again, is the most generous price/revenue ratio awarded to any stock with revenues over $100 billion.
We now have everything we need to calculate the expected return to investors:
Price_future / Price_today = (Rev_future / Rev_today) x (P/Rev_future / P/Rev_today)
= ($135 billion / $3.8 billion) x (2.4 / 20.5) = 4.159
Which implies an annual return on Google of [ 4.159 ^ (1/15) – 1 = ] 9.97% annually.
Bummer.
What if Google is the “next” Microsoft and Cisco Systems? Well, MSFT has about $38.9 billion in revenues, and CSCO about $24.2 billion. So $31.6 billion on average, with an average price/revenue multiple of 6.0.
Let's assume that Google gets there in just 10 years. Do the math:
($31.6 /$3.8) x (6.0 / 20.5) = 2.434, which implies an annual return of 9.30% annually.
Suffice it to say that even taking as given that Google is, in fact, the next GE, Microsoft and Cisco Systems, investors buying the stock at its current price aren't in for big returns.
...when enormously optimistic growth assumptions still imply pedestrian returns, thoughtful investors might want to stand clear.
Full article here.
HAHA you are not the only seeker of alpha MOO - hehe.
seekingalpha.com
Irrational exuberance again?
John Hussman's Hussman Strategic Growth Fund (HSGFX, a mutual fund that uses options to hedge long positons) has the best Sharpe ratio of any mutual fund. That's why his weekly letter is worth reading. Here's what he has to say about current market valuations:
As of last week, the Market Climate for stocks was characterized by dangerously high valuations and moderately favorable market action. The price/peak earnings multiple on the S&P 500 is now 21.08, exceeding the peaks of 1929, 1972 and 1987, and revisiting the condition best known as irrational exuberance. The historical norm on prior peak earnings (whether or not earnings were actually at a current peak) is 14. The historical norm on actual record earnings (as is the case today) is 12. The current dividend yield on the S&P 500, despite substantially higher dividends, is just 1.71% (the historical norm is about 4%).
Look. Earnings remain well contained in the same 6% peak-to-peak growth channel that has contained them for the past century, including the roaring 90's. Even if we assume further growth to fresh peak earnings 5 years from today and a terminal P/E of 18 (which is still so far above the historical norm of 12 on actual record earnings as to make the assumption foolishly optimistic), the total return on the S&P 500 over the coming 5 years would be [(1.06)(18/21.08)^(1/5)+0.0171(1+21.08/18)/2 - 1] = 4.56% annually. When foolishly optimistic assumptions still produce disappointing conclusions, investors should be prepared for bad things to happen.
That's not to say that stocks cannot move higher, but we continue to observe speculative merit without investment merit. Indeed, investment merit is so lacking, and speculative conditions so extremely overbought (the recent, uncorrected spike is beyond belief on a P&F chart), that a vertical decline off of this “high pole” shouldn't be ruled out. Patently overbought conditions in patently overvalued markets are the stuff that ruined retirements are made of. Though many investment managers are frantic to “make their number” for the year, there's a certain recklessness in taking substantial investment risk here. |
