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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (2822)	12/20/1997 2:53:00 AM
From: Michael Burry	Read Replies (1) \| Respond to of 78704

Jeffrey, Gotta get some sleep, but here's some response tech stocks have seen a 1990 style correction Though I would say they started higher this time. For instance, 88-90 Intel's PE ranged from 8 to 16. This year PE hit 24, and even now 18 is the high end of the 86-96 historical range. Seagate was often in the 3-4 PE range 88-90, with highs around 10-15. This year, we were valuing it around 25 times strong earnings - for a known cyclical that is gross error. Compaq same deal - PE 7-14 then, 15-30 this year. So there is a way to fall to hit historic lows on a valuation basis if things get crunchy this year. It may get that bad, but not like 73-74 where inflation in the face of stock market losses made for excruciating pain in real terms. large stocks could move sideways for an extended period, supported by the effect of declining interest rates on the capitalization of mediocre earnings If inflation is only going to be in the 1% range, we're looking at < 1% change in real rates if not an increase in real rates. This would be a hidden double whammy along with decreased earnings. The same factors that are causing the decreased earnings will be causing the low inflation/nominal rate decreases, which makes it hard for one to truly offset the other. while the massacred smaller stocks gradually recover What a difficult call! Smaller stocks - since so many of them are valueless techs these days - are so incredibly vulnerable in this indexing world. They don't participate in the upswings very well except at the end when institutions are desperate for stocks, then when things get bad everyone sells them and the rapidity and illiquidity combine to create disaster. I can't see them recovering in the face of serial disappointments from the big names, but that's my guess only... Ironically, the US taxpayer via the IMF may be supporting the very import glut that might doom earnings here! An odd form of double taxation, but I digress... If we really believe interest rates are going to keep falling to 5%, there is only one thing to do - go out and load up on 10 and 30 year zeroes like our hero Buffett. It's a leveraged pure play that will even offer diversification if disinflation plays out against corporate earnings. If only I had the guts... On the bright side, if a bear does result from this, you can bet it isn't the end of the world because currencies will eventually revert to the mean if not above it and the dollar will once again get weaker, and those with a long view will truly have an advantage over the short-termers. How's that for top-down investing? I'm trying to get it out of my system but I can't...need someone to slap me around with either some great value stocks or some great logic that says I'm full of it. Good Investing, Mike

To: jeffbas who wrote (2822)	12/22/1997 1:07:00 AM
From: Cary Chubin	Respond to of 78704

Jeffrey, September, 1997 Worth Magazine: Peter Lynch Column: "Discretion is usually the better part of valor when it comes to calling the market, and I do try to be discreet. So I'm not going to tell you that I know when the change is coming. But I will say that, when it does, I expect it to take one of three forms. The least likely scenario is that we will have more of the same--huge companies will continue to dominate. There is no historical basis for believing that the gap that began to open up last May will continue. A somewhat more likely scenario, because you can never forget that this kind of thing can happen, is that big-company stocks will fall sharply and take the rest of the market with them. Believe me, if a large-stock correction happens, small stocks will go down, too. The third and, I think, most likely possibility is that large companies will go sideways for a while and small companies will begin to close the gap. develops. You aren't trying to call the bottom for the small-cap market or for any company. You're looking for companies that will consistently earn money, because they'll be rewarded for it..." Cary Chubin