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Technology Stocks : 3DFX -- Ignore unavailable to you. Want to Upgrade?

To: Miguel M. de la O who wrote (5643)	7/21/1998 1:30:00 AM
From: Stuart C Hall	Respond to of 16960

I am responding to this message from Miguel M. de la O on Jul 21 1998 12:22AM EST FWIW....Vector Vest says TDFX is worth $43, but still has a sell recommendation because of recent price instability. Response: And just to make your stomach really turn, this is how Vector Vest rates YHOO: PRICE: YHOO closed on 07/20/1998 at $196.30 per share. VALUE: YHOO has a Value of $21.4 per share. AND THE BEST PART!!!! Recommendation (REC): YHOO has a Buy recommendation. REC reflects the cumulative effect of all the VectorVest parameters working together. These parameters are designed to help investors buy safe, undervalued stocks which are rising in price, and to avoid or sell risky, overvalued stocks which are falling in price. It just ain't fair. ;-)

To: Miguel M. de la O who wrote (5643)	7/21/1998 1:14:00 PM
From: Sun Tzu	Respond to of 16960

Thanks for an interesting post Miguel. I think my model and VectoVest's are pretty similar as we tend to come to the same numbers. This is not very surprising since most Wall Street models are about the same (they were designed by the people who went to the similar schools, took similar courses, read similar books, and listen to similar news. So no surprises here). What I also found interesting was that VectorVest and I have about the same opinion on Yahoo as well. Actually I was going to do a comparison of Yahoo and TDFX in my "Pandora" post to illustrate a point, but that post was already getting too long. So I just point out a few things here. First, the market is very efficient most of the time. By far most stocks trade at values that they should (once you cancel out the noise). However, sometimes some stocks (or stock groups) take a life of theirown and trade for very different reasons. Understanding those reasons can help prevent you from very costly mistakes (like shorting yahoo at $100 just because it is 500% overvalued and watching it go to $200 and become a 1,000% overvalued). Our two extreme cases here are TDFX a stock that is highly undervalued() (Does anyone object to this blanket statement? should I qualify it somehow? Ok) and yet even those who deem it as undervalued seem to (rightly?) sell it. And Yahoo, a highly overvalued stock by all accounts, but one that many who still deem it as overvalued still buy it. Why is that? First and foremost it's the trend. Once a strong* trend is established be it up or down, it becomes very difficult to break it. (as an example, Intel's lower than expected results causes a pop because 'it was not so bad' and 'where else would you put your money' arguements, but TDFX's 14% better than expected results cause a drop). Second, visibility and liquidity. Visibility means that everyone knows of Yahoo (and more importantly knows of its strong trend) and the liquidity gives the fund managers the (false?) sense that should things take a turn for the worse, they can get out of their position without too much trouble. Third and perhaps most importantly psychology. This means that almost anyone who has shorted Yahoo for any extended period of time has been nailed to the wall. This means that a good chunk of ardent Yahoo shorts are now bankrupt and cannot short it anymore (and more importantly they served as an example to others who might have decided to short Yahoo) or have decided that Yahoo is not a good short candidate and there are other ways to make money in the market. The reverse of this situation is true for the Yahoo longs. Anytime they got scared and sold out, the stock has moved up, as a result Yahoo shareholders are now conditioned to buy in the dips. How different is this from TDFX! Fourth, Institutional backing: This is very close to the above item. Here institutional backing does not mean Wall Street coverage or bullish recommendation; it means that because of the above psychology, holders of Yahoo are very ardent supporters of the stock. Not only they would be unwilling to sell the stock, given that so much of their performance is related to stock's performance, they would actively support and push it up, by buying in the dips and calling back their shares at strategic times to cause a short squeeze. Hopefully some day TDFX will enjoy the same characteristics, but I have no idea when such a day may come. Regards, Sun Tzu (*) By my model TDFX should trade between $23~$36 looking at previous 4 quarters, between $36~$45 looking at previous 2 quarters plus my estimate of the next two (this is the perspective that I use most of the time) and between $44~$77 looking at fiscal '99 (I find using this perspective too risky as things can change rather quickly)