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To: Chuzzlewit who wrote (30539)	2/20/1998 4:35:00 AM
From: Reginald Middleton	Read Replies (1) \| Respond to of 176387

I am enjoying the debate as well, especially since you picked up the short cut I took in testing out the model :-) Points of agreement and disagreement: <Instead, I prefer the MPT view that capital assets are more or less properly priced, and that the markets are basically efficient.> Markets are not truly efficient. I know this is a time tested debate, but if markets were actually efficient then it would be impossible for individual participants to outperform the market over any reasonable investment horizon. Since I don't want to brag I will not mention myself:-), but look at the records of Soros, Buffet, etc. Either the markets are inefficient or these guys have dishonest auditors:-) <Therefore, instead of trying to outsmart other investors... So, I believe I have identified a factor (rig shortage) which I believe is unknown to the bulk of the investment community. > These statements are in direct contradiction! In addition, if you truly have identified a factor that is unknown to the rest of the investment community, then the markets that you pariticapate in are not truly efficient. Efficient markets as I understand them, have digested and immediately incorporated into a liquidly traded asset's price all relevant and available knowledge concerning that asset. If you have knowledge that the rest of the market does not (and the market has not attained/manifested that knowldege over a short term horizon), then the market cannot truly be efficient (unless you somehow have access to non-public information). I agree that the market's perception and reality (as I see it anyway:-) will converge at some undetermined time in the future if they are disparate, but it is the point of divergence that indicates market inefficiency. A perfect example is the NSCP story. Look at how long that company's share price has remain inflated, despite the fact that ample information about the company's competitors and prospects were freely available (MSFT is no secret, and neither was IBM/Lotus). After a significant time horizon, the share price collapsed despite no significant change in the company's competitive position or cash flows (potential cash flows). An investor who properly measured and discounted NSCP's potential cash flows would have realized and capitalized on the market's ineffficient pricing of NSCP over that one and a half year period. <Value investing implies not only that there are factors known to you which are unknown to the bulk of the investment community, but also that there will general agreement in the appropriateness of the evaluation method at some time in the future.> I agree. <My usual arguments are with those that believe in TA, which I submit is total witchcraft.> If only TA were as reliable as witchcraft.... TA is has been empirically disproven on more than one occasion, while I have never seen any true justification for TA. Merrill Lynch (in their Security Risk Evaluation Service) and a research study by a set of Colorado research professors found that alpha (share price performance) exhibits absolutely no serial correlation (it shows no tendency to repeat). This means that a stock that outperformed the market in period A, had no more or less tendency to outperform the market in period B than a stock who underperformed the market in period A. This alone exposes a major shortcoming in TA. Another way of exposing the shortcoming is simply to ask a TA guru exactly why and how thier methods works. The answer will be... silence. We should take this discussion off thread, for it is starting to go off topic.

To: Chuzzlewit who wrote (30539)	2/20/1998 6:59:00 AM
From: puborectalis	Respond to of 176387

Does NETA fit your definition of a growth company and what would make you sell it?..thanks..always enjoy your opinions..Steve

To: Chuzzlewit who wrote (30539)	2/20/1998 8:45:00 AM
From: Douglas A. Sevy	Respond to of 176387

I too enjoy the discussion (from the benches) - very enlightening and informative to see all sides of the issues. Paul, I'm always impressed with your arguments and reasoning. Thanks to both of you.

To: Chuzzlewit who wrote (30539)	2/20/1998 10:29:00 AM
From: BUYandHOLD	Read Replies (1) \| Respond to of 176387

Paul and Reginald Very very enlightening discussion, in light of what occasionally transpires on these otherwise wonderful SI forums (or is it fora?!). I am sure this exchange would make Warren himself smile. I must add that in his determination of value Buffet simply uses the LT bond rate(v.large caps only of course). In academia of course risk free rates are obligatory(LT rates+equity risk premium assoc to uncertainty of company's future CF). According to Hagstrom, Buffet does NOT add this equity risk premium. He reduces financial risk by picking zero debt companies, and business risk by picking companies with supposed consistent "predictable" earnings...and it has been difficult to argue with Buffet over the last 30 yrs. As for TA (should it be T&A?, even CNBC has TA analysts I think. Now that has always boggled my mind. But as I am sure you have observed their performance is comparable (or better) to an average fund. Should that be more ammo to the Random Walkers? C