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To: jbe who wrote (22202)	5/17/1998 2:31:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 95453

Good morning jbe, OT Wow, all of this because I asked you a question! Okay: 1. Valuation models Models are generated to simulate markets. Unfortunately, many people confuse models with reality. Many will claim that reality is out of whack because because the models come up with answers that diverge from the actual. Well, perhaps I'm an iconoclast, or perhaps just a crusty old empiricist at heart, but if the model doesn't reflect the data I think it's time to fix the model! I neatly and deftly avoid this problem by standardizing the PEG by dividing through the PEG for the S&P500. This is purely empirical, and probably has no theoretical value. 2. Question (simple & not invidious): is it possible to estimate the first two [multiperiod growth in cash flows, properly estimated risk-adjustments for discount rates], and wouldn't "cash inflows into the equity markets" affect all stocks equally (and therefore be less useful in evaluating individual stocks)? No, because our time horizons are too limited. How can we see three years out for a company? Given our inability to see three years how can we even begin to talk about ten or fifteen years? The point about money flowing into the equity markets was suggested as a rationale for why PEG ratios are so high. 4. As I said in my previous post, I use a relative PEG only when I buy stocks. I never use PEG or PE or price as a criterion to sell. As I said before, I am simply looking at the long-term growth prospects of the company as my sole criterion. 5. Clearly, investors are willing to pay a premium for predictability, at least!. This has always been true! The higher the predictability of earnings, the less earnings risk. This is exactly the effect I referred to as the standard deviation of expected cash flows. 6. The problem with a lot of your analysis of individual stock is the result of using various search engines. Remember that much of the data they process are raw, and as a result they err in earnings and cash flows which can throw the entire analysis off. For example, you will find that according to Yahoo NETA has a loss. True, but only if you ignore the fact that the loss is non-recurring, and due to merger activities. Tyco, in particular, has bought a lot of companies over the past couple of years, so beware! In particular, watch out for such "expenses" as purchased software and goodwill. That's why I cautioned you to do your own homework (I know, I know ...). The ASND/CSCC resulted in merger related costs. TLAB incurred considerable currency translation losses. Since I'm not a professional writer, my fingers are not in training and I'm beginning to get writer's cramp, so I'll end here. I may grouse a bit, but I always enjoy our correspondence. TTFN, CTC