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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Mason Barge who wrote (4864)	2/16/1998 12:50:00 AM
From: Paul V.	Respond to of 10921

Threaders, Interest in Dorsey Wrights method of projections please find the below information. Paul V. Message 3440821 Sunday, Feb 15 1998 9:57PM EST Reply # of 692 To all. Your chance to ask Tom Dorsey... The President of Dorsey Wright and associates and recognized authority in Point and Figure charting, will be answering questions from you, Wednesday, February 18th. How are we going to do this? All questions submitted by 9:00pm (Pacific) Tuesday, February 17th. - Send your questions to me by the specified time. I will collect and organize for Tom. Please include in your post "For Tom Dorsey" so I know they are for him and not for me. If you do not want to post your question on the general thread by all means send me a private message. Ask as many questions as you like. Examples: Market trends, sector questions, stocks, news or whatever you can think of. Pretend you are calling to talk to him on CNBC. What would you ask there? - I will post all of the questions and answers in one post on the Point and Figure thread Wednesday evening. I know a lot of you are just learning and may feel self conscious about asking questions - Please don't! We are doing this to help you learn and understand the benefits of point and figure technical analysis as well as give some insights to the market. We do not consider any question ridiculous. It is to your benefit to take advantage of his expertise and knowledge. For those who may not know who Tom Dorsey is: Dorsey, Wright & Associates serves as the primary or supplementary technical research department for a number of firms, including a few of the largest brokerage houses and exchanges and professional management of equity portfolios for investors. Tom Dorsey is the author of "Point and Figure charting" awarded "Best Investment Book of the Year" by Traders almanac. He can also be seen on CNBC's stock talk once a month. Please join in, it should be fun and informative...

To: Mason Barge who wrote (4864)	2/16/1998 2:17:00 AM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 10921

Mason, << Are you complaining about dividends or do you like them?>> >I love 'em! It's something that worries me about a lot of >high tech stocks, to tell you the truth. ><snip discussion on dividend yield> Oh, no! A cash flow oriented tech investor! This can't happen! Run for the hills! :-))))) In reality, you raised a great question. I noticed that Michael Burry tried to discuss this on the Speedfam thread, but I did not follow the discussion. Anyway, I'll post here my naive and short summary on cash flows. OK. Companies report EPS, which is complicated by the rules of accounting. That's why some people look at the FCF (free cash flow). This is the number defined as net income plus amortization and depreciation (not real expenses!) minus NECESSARY (to sustain the business) capital expenditures. There is a thread that focuses on FCF as value criterion: Subject 17762 Unfortunately they got swamped in some theoretical arguments. ;-) But let us forget the arguments whether FCF is a value criterion. The thing to notice is that if FCF is negative, a company at some point will have to borrow or issue shares to to get more capital - it just cannot sustain its operation. Well, that's bad for the investors. On the other hand, if a company has a positive FCF, it can use it to grow the business, to pay a dividend, or to buy back shares. Most people agree that growth is the best thing possible - it gives the highest return on capital. Paying dividend is bad - it is taxed two times. So if the investment in growth is unavailable, a share buyback is the way to go. Any way you look at it, the nice thing about a FCF positive company is that assuming that it stops growing, it will be able to use its cash flow for either dividends or for share buyback. Unfortunately this nice picture is not so simple with tech companies: 1. Most of them have negative FCFs and even negative operating cash flows. (Don't even mention biotechs!) 2. But some of the best managers do the secondaries when the stocks are overvalued (SFAM and others this summer). Notice that Buffett advocates the same thing - get the capital when it's cheap. 3. The stock buybacks in tech companies are just lip service. The money would be better invested in growth. The same applies to dividends (sorry, COHU and HELX). But the best managers buy back stock after crashes. They buy the stock that they have issued at the top (point 2)! It's like shorting only with no downside. ;-) 4. The tech investors don't care about dividends, cash flows, etc. They care about X,000% annual returns! Come on, it's more fascinating to get 27% a day from SFAM stock jump than to sit a year to collect a 5% yield. The above issues imply that unless there is a shift in investor approach, there is no point in worrying about cash flows of techs. They become important only if the company is in danger of running out of money (TRKN, SUBM). Doing secondaries and borrowing in a bad situation is no fun. The above reasons support Fisher's Superstock approach to the tech investments. Just to remind: 1. Supercompany is a leader in its field. 2. Superstock is a stock of Supercompany cheap using PSR. These two points ensure that the stock is cheap and that it will eventually (in case of techs - tomorrow :-))) come back up. Personally, I throw in some other conditions, just to narrow my investment horizon to manageable size. :-) BTW, removing the second condition works in some cases - INTC, MSFT, CSCO. I just don't feel comfortable enough to invest in these cases. Also note, that superstock approach was defined as trading approach - you have to sell at high PSR. It can be used as a buy and hold approach with varied success, I think. CYMI was a superstock at ~$15. As were most semi-equips a couple weeks ago. You can still buy KLIC and SMTL. ;-) But - take a look at FCF before buying a non-tech. ;-)))) Good luck Jurgis