Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Chuzzlewit who wrote (81746)	11/22/1998 3:12:00 AM
From: On the QT	Respond to of 176387

Hi Chuzz, Time to clear up a few things so lets review our posts and get beyond it: Chuzz: I'm not sure what you are really asking. If you are questioning my veracity QT:No Chuzz: I suggest you speak to a CPA about how companies account for transactions involving their stock. This is not a question of what is valid for you…. QT: Not a question in my mind .You will do just fine for me, hence your assessment in certain areas is valid and works for me at this point in time. Chuzz: but ( it is) a question of what accounting method would give a fair representation of the state of the business. This link was posted about six months ago concerning the abuses of employee stock options and the failure of the accounting system to adequately measure employee costs: forbes.com While I'm on the subject, I have a lot of problems with accounting standards that do not adequately account for business combinations. The creation of reserves for one-time merger expenses is a prime example. Another is the vast difference in accounting for a combination as a purchase or as a pooling of interest. Since the purpose of an accounting system is to fully and fairly reflect the state of the business I suggest that current accounting standards abet the creation of fictions by managers. I think a better picture might be obtained by publication of a corporations federal tax returns with footnotes noting areas where the company feels federal reporting distorts reality. QT: This makes sense to me. However, unless this changes, we need to do a better job of sorting out the misleading stuff, if for nothing else, but just personally getting a better stock valuation picture. One approach is to measure those companies who are considered competitors. Ascertain their true earnings lets say for the last 5 years then compare against their misleading presentation of earnings. Look at the % difference for each year and each quarter. Do this for each company in their grouping. Chuzz: Regarding PEG, the use of this metric is flawed for a variety of reasons, including, but not limited to its insensitivity to economic realities. For example, DCF theory states that when long-term interest rates fall stack prices should rise to reflect the greater present value of future cash flows. But the PEG metric is insensitive to interest rates. Therefore, I have taken a different tack. Instead of trying to decide whether a stock is misvalued in an absolute sense (an impossibility in my mind), I ask whether a stock is misvalued in a relative sense. PEG might be normalized with respect to a broad-based index such as the S&P500, or, as Jimleon (an occasional poster on this thread) has suggested, against a peer group like an index of computer manufacturers. QT: DCF Vs OPM another time and an other subject! My point is you may very well have a better window than that which is generally out there. That is not the question in my mind. It is rather: let us go with that which you have thus far been able to work with and how should that be addressed. You should now know my willingness to explore,(when there is sufficient evidence for me to do so), that which seems to be good stuff. I do think all measurements should be taken and compared over a period of time. Jimleon may very well be on the right track with your stuff. Chuzz: Whether or not this approach has value remains to be seen. Remember, discordant PEG may be interpreted as meaning that the value of the base-line index is incorrect, and that the stock under consideration is properly valued. Ya pays yer money and ya takes yer cherce! QT: How about developing a way to check this out! My own experience in dealing with relative relationships is to place each significant part in a different order and then measure the comparative results attained in each sequence to see what produces the best results. In other words, it is not as important in this process to determine which has the greater value (is truer) when compared one to the other, but rather which sequential order is best to use to improve on the results attained with perhaps even more flawed information! Perhaps you present imperfect information yet this may very well advance your efforts to improve on that which you already know to be inadequate! There is something in this mix that should be pursued. You should come to a better understanding of why it is that I pose questions to you or why it is that we sometimes question where the other is coming from or getting to. For me it has nothing to do with questioning in your case, your honesty. That was not nor do I anticipate it will be on the table for us. The information you provide based on your past performances is accepted on face value even when I can't verify it. I'll work with it, if I choose to be believe it is valid for my purposes. If not, maybe, something else you present may be of more value to me. Yet that which is of value to me may not be to another. The information stands alone. Whether clear, pure, imperfect, flawed by insufficiency, it may or may not be objectively ascertained. I want to focus in on the link you provided to me and as I see was provided to you by another poster. That is what this QT thing with this thread is about. It is one person touching another. Helping another to help another. In the words of H.B.Monjar (who proceeded all of those I chose to accept as valid for me and yet his works came to my attention rather late in my development) "There is an inner glow of satisfaction and a warmth of spirit which comes from having done certain things that actually prove to be of real benefit to another person." Yes! It is also about someone who just happens to stop and say maybe just maybe, this person has something to offer. Maybe that person could make a difference in my bottom line. You know how you felt when someone gave you something back that said: Yes I am on the right track! Something that you could use that helps you make a point, or something that comes your way that makes all the difference in how you will approach a problem or challenge.I know what that feels like and it is good really wonderful, to be part of that kind of cooperation! Sincere Regards, QT

To: Chuzzlewit who wrote (81746)	11/22/1998 2:39:00 PM
From: Mick Mørmøny	Read Replies (1) \| Respond to of 176387

Financial Engineering 1.0, in today's issue of The NY Times, is the latest article from Gretchen Morgenson, the same author of Stock Options Are Not A Free Lunch. Paul, you are right on many things. Thanks for keeping us informed. -------------- The wondrous innovations of America's technology companies make them the envy of the world. But for some of the biggest names in technology, one of the most profitable inventions is not about computer hardware, software or microchips. It's about finance, and it is generating hundreds of millions of dollars -- tax-free -- a year. Intel, Microsoft and, to a lesser degree, Dell Computer sell put warrants on their own stock to outside investors. The warrants give buyers the right, for a limited period, to sell shares of stock back to the company at a set "strike" price below the market at the time they buy. In the quarter ended Sept. 30 alone, Microsoft took in $225 million from the sale of puts -- a sum equal to 13.4 percent of its net income in the period. The transactions are ingenious, because tax law makes any dealings that a company has in its own shares tax-free. And tax-free income is always nice. But it is a godsend for many capital-intensive technology concerns, whose operating costs are often so close to operating income that few generate positive cash flows. Even companies as mighty as Intel operate close to the bone. But because the money received in these deals is not detailed on the income statement, it is unclear whether investors understand how much the sales can contribute to a company's financial position. The proceeds show up on statements of cash flows, on which fewer investors focus. Furthermore, when companies are forced to buy back shares, they often have to use hard-earned money that could otherwise be reinvested in their business. "This is part and parcel of the remarkable degeneration in the quality of earnings reporting that we have seen in the last two or three years," said Larry Woods, editor of The Technology Review, an investment newsletter in Stony Creek, Ontario. "They provide companies with an inflated bottom line, and they dilute shareholders' equity." Companies that sell puts are betting that their shares won't fall to the options' so-called strike price during the transaction's time frame. If they're right, the put expires, and the company keeps the money paid for it. The buyers of the warrants are betting that the stock could fall. But because the company is obligated to buy back its shares from the outside investors if its stock drops below the strike price, the warrants are a potential liability. While Intel reports the potential liability for its warrants -- currently $588 million -- on its balance sheet, Microsoft does not, so some math is in order. In notes to its financial statements, Microsoft said it had 75 million put warrants outstanding on Sept. 30. They expire between March 1999 and September 2001 and have strike prices of $76 to $88 a share. Taking the average of the two prices, if the company had to buy back all the stock covered by these warrants, it would spend more than $6 billion. That's about one-third of Microsoft's net worth (or shareholders' equity) of $19 billion. It is unlikely, of course, that Microsoft's stock will drop from its current $113.625 to below $76, requiring all the warrants to be exercised. But it's not out of the question. In January, Microsoft stock traded at $63.50. Companies using these programs say they offset some of the costs associated with aggressive buyback programs that benefit shareholders. But investors wowed by big jumps in income at technology concerns would do well to dig beneath the surface to see if the good news was the result of operations -- or of financial engineering. nytimes.com