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To: Joe E. who wrote (65)	2/2/1999 4:43:00 PM
From: MaryinRed	Read Replies (3) \| Respond to of 419

Holy moley.....makes me think I am back at business school... laugh....and I thought I knew what I was doing... smiles...mary

To: Joe E. who wrote (65)	2/2/1999 5:13:00 PM
From: Chuzzlewit	Read Replies (3) \| Respond to of 419

Thanks for your comments Joe. A couple of points need to be made. I pointed out earlier that we have no direct way of measuring the discount rate that the market is applying to perceived future earnings (or cash flow). So when you evaluate the method in terms of PV of cash flows I think you are making two unwarranted assumptions: first, that you know the risk-free discount rate the market is applying, and second, that you know the risk premium. CNPEG was specifically designed to avoid those problems by asking about "relative" valuations rather than absolute valuations. With regard to CNPEG2, I too am uncomfortable with the inclusion of betas in the calculation for a variety of reasons mostly related to how good a surrogate it is for risk. Because when you really get down to it the method contains the expression beta/(Eg)inverting and rewriting we have e(g/beta) = e/(beta/g). Therefore beta/g becomes the growth and risk adjusted discount rate. So for AOL it would be 2.31/47.2 = 4.9% vs. 14.3% for the market. Maybe I'm inhaling too much pure oxygen on this one. The biggest problem I have with my metrics (and I'm not sure how to handle this easily) is that there are some stocks in the S&P that don't have earnings, or whose earnings are minimal. Nevertheless, these companies have "value" based on their assets. Perhaps these need to be excluded because they provide an inflated forward P/E. TTFN, CTC