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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1425)	3/5/1999 7:47:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

Can you say "B-U-Y-I-N-G P-A-N-I-C" --!?!?> New York Composite Avg 603.14 Up +12.39 (+2.10%) Advancing Issues 2,060 Declining Issues 917 Unchanged Issues 563 Advancing Volume 642,518,000 Declining Volume 148,881,000 Unchanged Volume 42,923,500 Total Volume 834,323,000 Message 3792533

To: porcupine --''''> who wrote (1425)	3/5/1999 11:13:00 PM
From: Freedom Fighter	Respond to of 1722

Porc, >>As for repetition, porx viewpoint is: 1. There are always newcomers; and 2. repetition forces porc to rethink, from which he benefits greatly. Sorry if it's a bummer for you --'''':> I understand your view here. It's a bummer for me though and a bit frustrating. Especially if I feel you are misunderstanding ground I have already covered about myself. >>As for Tobin's thesis (was he the idiot that argued during the 1970's that 10% annual inflation was a good thing for job creation?), porc has been pondering that one since you brought it up awhile ago.<< Porc, is that the "I" word - and you talk about me. (just kidding). I don't know too much about him but if he did say that it's "preposterous" and not "worthy" of discussion. (kidding again) >>Briefly, if he's talking about the replacement cost of tangible assets, it's impossible, because they keep falling. If he means actual ongoing capital outlays, porc is dubious.<< Without discussing the data I'll just quickly define what it is to the best of my understanding. That way you can think about it some more. Just to let you know, this way of looking at aggregate market levels is new to me and the numbers are shaky at best. I find the theoretical argument of Andrew Smithers super stimulating though. I really don't have much to offer on the subject except the data and my intuition. The Fed keeps track of the historic cost and replacement cost of tangible assets. Historic cost is similar to book value and captures depreciation and the capital spending to replace old capital and add new. Replacement cost is the same as above but captures the effect of inflation on all that stuff including buildings etc.. ex. Let's say a hammer cost $10 and has a useful life of 10 years. If the cost of a hammer doubles to $20 in year 1, it would capture the inflation in the price of hammers and the fact that it is one year old. ***This is the number we will be looking at. It does not to the best of my knowledge capture software and other high tech intangibles. (but it may) As one small extra, Andrew Smithers of Smithers and Co. Ltd. has done the best work on the subject of Tobin Q that I know. I've read all his reports (they are killers). This is one very smart fellow. He covers the subject of intangibles and human capital. He thinks the intangibles part is an issue but estimates that the sum of its amount is not yet significant enough to skew the data significantly. He has a lot of data to prove it but I have not seen the rebuttal from others. This is something I would prefer not to discuss in too much detail for one main reason. I don't know the answer. I am forced therefore to either take Smither's word on it or ignore the whole topic. I'd rather not argue all his ideas. They are very complex. It would be a book. I agree 100% with you that it's definitely worth something though. It would have to be many trillions to account for the current overvaluation though. I just don't know how much it really is. He also has some ideas on human capital as does Tobin (which I will publish). My own view is that on an individual company basis human capital can be important. I think any company W. Buffett or Joe Steinberg manages is worth more than you would otherwise think. I'm a little skeptical about overall numbers and aggregate business though. Somehow I think the companies with "top" human capital take away business and returns from the ones that don't so it nets to not too big an issue from the Tobin Q perspective. And even though some people really are that good, most of them are fully compensated (thus removing some of the added value and excess returns) or they would leave until they are. I don't know the answer to this either. I just have suspicions. One thing I am fairly sure of is that some principals that are applicable to individual businesses are not applicable to the aggregate. Now that you have the definition you can think about it a bit. Bye Wayne