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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year -- Ignore unavailable to you. Want to Upgrade?

To: Raptor who wrote (198)	3/11/1998 8:20:00 AM
From: Steven L. Johnson	Read Replies (1) \| Respond to of 4509

> do you know why charts like this have wide spreads > on the vertical axis at low dollar values > and the spreads narrow as the dollar value per share increases? Yes. And it is an important answer to know... It takes percentage growth into consideration. Look at the chart carefully (which you should do with any chart!) and you'll see that the scale is labeled based on doubling; that is, the distance between 5 and 10 is the same as the distance between 10 and 20. When you think about it any chart that doesn't take percentage growth into consideration is very distorted. Put another way: All models are wrong, some models are useful.

To: Raptor who wrote (198)	3/11/1998 10:04:00 AM
From: Mr Logic	Read Replies (1) \| Respond to of 4509

Raptor, I enjoy it too, and rarely tire of hearing other views. 1. Chart question answered by Stephen. I would add, yes a log chart is sensible as it takes compond growth into account, but I actually like to see the zero-based linear chart too, particularly over shorter time frames. A linear chart of PSFT could give you vertigo! 2. Most of us do have 20/20 hindsight. One problem I have being contrary on some stocks is that there is now a bigger disconnect between 'the company' and 'the stock'. We all talk in tickers and IMO don't really relate the rewarding changes in the stock price with anything fundamental about the company. An example might be that PSFT signs a $20m (ie big) deal at a large company, and the stock rises from $48 to $49 on this very good news. The deal earns revenue, gives a future support payment annuity, is a good reference, provides reassurance on growth etc.. Certainly worth PSFT 'the stock' putting on a dollar. But compare the max $20m direct earnings on this deal with the $250m future earnings obligation it puts on Peoplesoft the company to deliver on the promise. Does that make sense? An extra dollar on the stock price is not much for the rocketing chart of PSFT but for Peoplesoft the company, it equates to well over two times all the money they made in the past 12 months. It is hypothetical - so change the numbers if you are not comfortable - but I am trying to make a point about the disconnect. So this disconnect gives us the situation where stocks (the numbers next to the ticker symbols) go up and up, because, well, stocks just do that. People's experience is very largely of stocks only going up, if they have chosen a good company like Peoplesoft. That's one reason for the widespread use of the phrase 'buying on the dips'. It must be a dip because stocks only go up. If you had tried to do that on, say, IBM during the late 1980s you would have had a long wait for the other side of the dip. If you think about it, it is even inappropriate to say a stock is 'growing'. The stock has grown. Who knows if it will grow more? The company is growing, sure, but that is a physical entity with a momentum - and its growth should be reflected in the stock price. 3. What right do I have to criticise an approach that has made you a lot of money?!? I understand 100% what you are doing and why. If it were me, I think I would want to get the spreadsheet out and run through a few scenarios - goes up, hovers, or goes down, in varying degrees. You can make some judgements now and try hard to stick with them. Eg, if the price is 70 by May 1 would you turn some of the paper into cash? If it hits $30 what will you do. (It doesn't matter if you think it will or not, IMO now is a good time to make those decisions.) This would be an easier and better discussion in a bar! Best Regards, P.