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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: jhg_in_kc who wrote (570)	11/20/1998 10:53:00 AM
From: Robert Douglas	Read Replies (1) \| Respond to of 4691

Re: valuation/ p/e ratio. Is a company with a 24PE that grows earnings at 7% a year (IBM) a better deal than a company that has a PE of 65, but grows at 50-65%? (i.e., Dell) ? You tell me how long these past growth rates will continue into the future and I will tell you which is the better buy. Will Dell keep 50% growth up for one more quarter, one more year, five more years? As you know, a 50% compounded rate of growth is not going to stay for long. Wall Street analysts love to take a recent trend and extrapolate it into the future. Most earnings predictions could be made by a second-grader with a straight-edge and a piece of semi-log graph paper. Your question is the wrong one because it is backward looking and not forward looking. The temptation to forecast the future by looking at the recent past is folly, practiced by those wishing to sell you something. -Robert