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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Berney who wrote (404)	6/18/1998 9:15:00 AM
From: Daniel Chisholm	Read Replies (1) \| Respond to of 1722

Why not calculate total Price (sum of market caps), and divide it by total earnings? This would give a composite P/E of a mythical merged company. This of course ignores how "true" (i.e., meaningful) the reported earnings are, as well as any favorable or unfavorable consequences to earnings that could have been realized had the companies actually been combined. But it is simple, mechanical and does not discard any data. It would be interesting to see what the results are.... - Daniel

To: Berney who wrote (404)	6/18/1998 7:22:00 PM
From: porcupine --''''>	Read Replies (2) \| Respond to of 1722

Wayne and Berney: I think there is a rational middle ground between "there is one, and only one, way -- now and forever" and "any way might be just as valid as any other way". I agree with Dark Side that the only economically meaningful definition of an asset's long term value is the present value of the cash that asset eventually generates for its owners. If an equity asset generates cash for its owners, eventually the price the Market will pay for that asset will tend to converge with prices that the Market is paying for a stream of cash of similar magnitude and reliability from some other sources, for example, bonds or real estate. That's the basic meaning of Capitalism. To mix (the 18th century) Adam Smith's metaphor with (the 20th century) Benjamin Graham's: Eventually Mr. Market's invisible hand picks up the the $100 bill lying on the ground. That doesn't mean that prices can't move up for other reasons. It just means that those other reasons have to do with factors outside the purview of economic analysis. On the other hand, there are different approaches to forecasting the cash that an asset will generate in the future. In the past, differing indicia of past and present financial performance have had more or less success in predicting an asset's future generation of cash flow. Graham's typical methods were indirect. Buffett's methods are more direct, and more narrowly focused. Both succeeded mightily in identifying securities whose short term price was temporarily well below their long term value. It is my (somewhat controversial) view that a significant factor in the similar predictive success obtained by differing approaches to measuring Intrinsic Value was the result of the different political and economic climates that obtained during the bulk of their respective investment careers. Elsewhere, I have characterized the difference in these two eras as that between 1) boom and bust Capitalism, and 2) long term cold-war/welfare-state Capitalism. I think the current era, the 3rd Era if you will permit, is, unlike the preceding two, one of long term falling costs and rising productivity. If so, this would imply that a somewhat different (though by no means drastically different) mix of criteria of fundamental value will have a greater success in predicting which equities are currently selling at prices below the present value of their long term cash flows -- than would some of the methods of the past. porc --''''>

To: Berney who wrote (404)	6/18/1998 8:20:00 PM
From: Freedom Fighter	Respond to of 1722

>Need some help -- What is an average? You identified some very interesting problems with statistical studies and plain data. This is especially true when it come to stocks. Is 25 times recession earnings equal to 25 times capacity business cycle earnings? In a statistical study they are. In business reality they are not. My only suggestion is that you use some sort of unbiased subjective judgment. We are all trying to get to business and value reality. Wayne

To: Berney who wrote (404)	6/20/1998 10:14:00 AM
From: smolejv@gmx.net	Read Replies (1) \| Respond to of 1722

As Mark Twain said once: a) lie b) damn lie c) statistics Berney, you say yourself you are "running into a real problem with comparisons". Simply thats the way it is. There's simply no way to squeeze dependable data out of a sample of four. There some ways out/around it: a) oversample: take several samples of historical data of the foursome. The idea being the "time" average is equivalent (is it really?...) to the "industry" average b) acquiesce the uncertainty and see how it propagates into your model: take average PE 10,20,30,40, or whatever parameter you need and see what difference it makes at the other end. There's sooner or later a stone wall blocking our subconscious intentions to make everything predictable. It was very hard for me to swallow back at the university (quantum mechanics, thermodynamics, to mention just a few). But, one get sort of used to it; even Einstein thought "God does not throw dice". You bet she does (g). Re your musing on intc and csco, the only thing I would add is, some people dont just perceive "value" in cisco. They're (we're) making steady money with it. I have not yet touched your data goldmine, as it seems you get by without my help. What I would appreciate is (yet another I guess) description of your day-MACD-is-bull vs week-MACD-is-bear (or something of this sort) strategy. Any typical case with these patterns that would help me understand it? DJ