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

To: Eddie Kim who wrote (33311)	9/23/1998 10:49:00 AM
From: Tumbleweed	Read Replies (1) \| Respond to of 97611

Forget about how subjective Value is...that's not the point. For our example, Let's assume we can agree on what's overvalued and what's undervalued. Dont think we can do that. I dont think Dell is overvalued for example, but actually, even if I did, I still think it has more potential to rise than CPQ. To put it another way, Dell's capacity to become more 'overvalued' may outstrip CPQs tendency to become 'valued'. Undervalued means that the market does not give a high enough value to this stock; thus, it should eventually go up. Wrong, wrong, wrong, wrong, wrong. 1)It may become more undervalued. After all, by definition, thats already happened to it, so it can happen more. 2)Conditions may change and it may become fairly valued, at the level that it was previously undervalued at. 3)The market may fall. Same again. 4)People may change their opinions on what gives it is value, and it may become more undervalued. 5)Eventually is a long time. I may be dead before it eventually gets back to a fairly valued price, or it may never get there, or before it gets there, something changes that causes the valuation to chnage more negatively, or I may get bored waiting for this dog to rise, or I may see a better opportunity. Undervalued means that the market does not give a high enough value to this stock; thus, it should eventually go up. If it does not go up or if it shouldn't go up...than its not really undervalued ( a little 20/20 hindsight). The opposite is true for overvalued. A key point Eddie? We do not have 20/20 foresight, so talking about whether it was or wasnt fairly valued with the benfit of hindsight is very interesting, but doesnt help us with the small matter of which will rise more in the future, Dell or CPQ Finally, I take the point about looking at past performance, but I wasnt trying to do that. What I was pointing out was that 12 months ago, people were saying Dell was overvalued. According to your theory, that then means it shouldnt have risen, right? Overvalued stocks fall, undervalued ones rise, right? Wrong. This is not an immutable law, even if we could agree on value, which we cant. PLus, you have to assume that the stock rose because it was doing something right,a nd the other stock fell because it wsnt. If nothing chnages, why shsould the graphs (Of course, trend lines may even out, but why should the general trend not continue.) Soooo, the same people who 12 months ago were saying Dell was overvalued were either a)Wrong, or b)DEll is more overvalued today but that didnt stop it rising did it?. Therefore, it can rise more in the future. Risk is probably higher, but then thats what all this is about. JoeC