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

To: Axel Gunderson who wrote (607)	8/10/1998 8:10:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Fleckenstein on tech accounting: SEC probes tech stock earnings... Another factor contributing to the weakness in tech stocks (besides the deteriorating fundamentals) can be found in an article that discussed the heightened scrutiny that they are facing from the SEC. The problem is the tendency of these firms to inflate future earnings by overestimating early stage research that is attained through acquisitions. The SEC is investigating large, one-time research and development write-offs, which tend to get taken when companies acquire other companies. They then try to attribute the purchase price to process research and development, which creates bigger up-front expenses, lowering expenses down the road. Tech stocks may have dipped today as a result of the SEC probe into this widely abused practice. Regardless, readers should know that tech land is still just an accident waiting to happen.

To: Axel Gunderson who wrote (607)	8/10/1998 8:27:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Axel, >>The objection that I have when A. Cohen (or any other) states that the market is over or under valued is that they don't give their reasons, or even state what fair value is. The question I would pose to A. Cohen, given the opportunity, is at what level would you consider the market to >>be overvalued? In my view there is no level at which she would PUBLICLY say that stocks are overvalued. As far as I know she has never used that word in her career. That includes 1987, the junk bond collapse (which was her area at the time) and Asia recently. No matter how high they go and no matter what the problems, she finds a way to spin it into another buying opportunity. She is hard for me to take serious even though I have the utmost respect for her intelligence. >>>While I am very aware that over any decent period of time, stocks have historically outperformed other assets, if capital is allocated accordingly, then at some point equities will be priced to return the same as competing asset classes. Thus I think it behooves those who very publicly opine on valuation to also offer the basis for their opinions. <<< I agree with you on everything. Just a thought. I believe that stocks should always be discounted to return more than other asset types like cash or bonds. There are additional risks owning most businesses. You simply cannot know the future completely. Also, one can never be sure that he can cash out his stock at an appropriate price as he can when bonds mature and he gets face value. An investor can literally have to wait a decade for a business to reach its fair value. Some analysts do give fair value numbers. It's a very subjective area though. There are also lots of people that call themselves "value" guys who in my view are not. There are also a lot of different models, risk premiums, and other inputs etc... used. I myself use a variety of models that give me different results. Each thinks about value in a different way and makes different assumptions about the future and what is knowable. I invest when they all tell me its a good deal. Value Investor Workshop members.aol.com