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Strategies & Market Trends : Roger's 1997 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Jon Tara who wrote (6117)	10/27/1997 1:05:00 PM
From: White Shoes	Read Replies (1) \| Respond to of 9285

I think the high valuations you get on Vectorvest are usually attributable to high earnings growth rates. Like any automated service it needs to be taken with a grain of salt, but I can see how it would take the work out of doing various calculations, and seems to provide an interesting overview of a stock's growth prospects, chart timeliness, and fundamentals..."in a nutshell". Not to be applied directly, but useful information.

To: Jon Tara who wrote (6117)	10/27/1997 1:29:00 PM
From: Graeme Smith	Respond to of 9285

>> I find that VectorVest typically comes out with unreasonably high >> valuations. I think you mentioned that once before and I was quite surprised. Actually over the weekend I have been doing quite a lot of statistical analysis on the database Vector Vest supplies. I can't remember exactly, but I believe the average Price/Value for the last 12 months was very close to 1. Maybe you have been testing good stocks with VV. >> I wonder if this is because they are assigning multiples based on >> market averages. The market seems to be saying now that it >> is willing to continue to support those multiples. I don't believe VV uses multiples. I have not looked deeply into its valuation mechanism, but it uses a standard cash flow technique. What VV does rely on is future estimates of results and Growth Rates (Growth only needed for RV I think??). >> Does VectorVest adjust their multiples depending on market >> conditions? As above. >> Relying on Vectorvest for valuations could lead you seriously >> astray. I don't neccessarily agree with this. VV is one of many tools and information sources useful for making investment decisions. Statistical analysis, over only 1 year, 6000 stocks, has shown me that price/value was very predictive of average return (.1% confidence level). This may change in different markets, but for the conditions present over the last year (bull market) it was predictive. VV may be inaccurate under three conditions. Firstly it is looking medium term (2 and 3 years). As a result a stock like DDIM is given a fair value of 56 because it is growing remarkably fast and will have a future PE of only about 40 or so. It does not/cannot take into account that DDIM will no longer make a profit after 2000. Second condition is where future estimates are inaccurate. example, XCIT was recorded with a growth rate of -5%. Although I think XCIT is overvalued, I will conceed that its growth is slightly more than 5%. Third condition is where future estimates are changing. Dow Jones has plummeted over the last week, yet the VV "fair value" DJ has actually gone up with Bond prices. The reason for this discrepancy is because the real market has started discounting the asia affect on stocks. VV has not. Eventually, as analyst start to lower future estimates on companies, the VV "fair value" DJ will converge towards the actual DJ.