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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: Alok Sinha who wrote (16448)	5/17/1999 10:53:00 PM
From: Walter in HK	Read Replies (1) \| Respond to of 64865

Alok, let me know what the right rate for discounting is. I am looking for some logic. I am an EE that ran an engineering company, so I don't know what they teach at Bus Schools and would the logic convince. If you discount at a high risk rate you come to an unrealistically low price. The market wouldn't be this unrealistic for so long. My daughter (HBS MBA and MIT MS) thought discounting with the risk free rate was not an illogical approach. The alternative. I guess what we are trying to fathom is: Can these high P/E be justified (without declaring a “New Era” ) ? Or has the market arrived at a totally irrational valuation ? It, by now, has been a bit long in time to be totally irrational. The DJIA has been more than 50% above the (1920 - 1998) Value Line for four years and was this high only once, briefly in 1987. (It has been below the Value Line longer and more) My daughter points out that the risk free rate used to be around 8 %. Again, I think the computer/internet can be compared to the steam engine and the electric motor. It is also interesting that Peter Drucker observes, the great growth of an industry occurs 30 - 40 years after the underlying discovery. He gives older examples, I know this to be true in the Industrial Gases business (air was first liquefied in 1895). The transistor was invented in 1948, the chip in the late 1970's, I think. Let me know whether there is no hope to rationally explain high P/Es. Walter in HK