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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Lucretius who wrote (64389)	9/9/1998 1:37:00 PM
From: WBC	Read Replies (1) \| Respond to of 176388

LT, Sorry, I disagree with your argument which you have based solely upon your personal feelings. If you feel that I'm wrong, can you please give some detail and sources to backup your statements like: 1) "cyclical co's like DELL have been valued at anywhere from 3 to 10x earnings" 2) "Such thinking was also prevalent in the late 20's" The world is moving away from the industrial age and it's investment maxims and into the information age. With this shift comes a transition to newer and more valid methodologies in evaluating equities. From my perspective, you are just fighting change despite evidence that your old methodologies and norms may no longer be completely valid.

To: Lucretius who wrote (64389)	9/9/1998 2:18:00 PM
From: Chuzzlewit	Read Replies (3) \| Respond to of 176388

Good morning Lucretius, Multiples of earnings must be put into a context. First, future earnings (cash flows, actually)are what count, and even there you must evaluate those earnings in light of prevailing interest rates. Since those rates are low and expected to fall even lower, comparing historic P/Es for growth companies to current P/Es will give you a very distorted valuation. But even so, as I recall IBM and Xerox during the 1960's had very rich valuations. Certainly much much higher than 10. Some years ago I prepared a regression which compared the P/E of the S&P500 to 30 yr. treasury bond yields. Not surprisingly, the inverse relationship is striking. Reliance on metrics such as book value is a big mistake. Book value measures historical costs and is important only as a security net when things are going poorly. But that net is always full of holes for several reasons. First, you must rely on management's estimates for the proper depreciation rate. Remember the LEASCO fiasco where depreciation was greatly understated? Second, book value rapidly erodes in the face of poor execution of the business plan. NII, for example, was selling for less than book value. The company wen bankrupt in a few years. Ask the 'value' shareholders how much value they netted from the book value. Finally, Dell does pay a dividend. The dividend is in the form of share repurchases. This is a more efficient method than a DRIP because it defers taxes on the stock repurchased. For example, if Dell paid a cash dividend, that dividend would be subject to ordinary income tax. Whatever is left over could be used for purchase of additional shares by the investor. But if instead the company used the same amount of cash to repurchase shares there would be no loss of cash to the IRS. Furthermore, when the shares are finally sold, the "dividend" would be converted to equity and thus ordinary income converted to capital gains and taxed at a lower rate. LT, please think carefully about these points. I'm not entering this discussion as an exercise in debate. I honestly believe that your valuation perspective is without merit because it relies on heuristics rather than econometric modeling. TTFN, CTC