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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Duker who wrote (30589)	5/25/1999 4:41:00 PM
From: Robert O	Respond to of 70976

O Awfully _______ \|xxxxxxx\| \|xxxxxxx\| \|xxxxxxx\| \|xxxxxxx\| \| \| \| \| Close T

To: Duker who wrote (30589)	5/25/1999 8:55:00 PM
From: Proud_Infidel	Read Replies (5) \| Respond to of 70976

Duker or Anyone who can answer, I broke out my Intelligent Investor today by Benjamin Graham, Warren Buffet's onetime teacher. Since we are currently in in tech-doldrums once again, I thought now was as good a time as any to ponder some lines from the book. Following is an incredible quote from page 160, if taken at face value: We should have added a caution somewhat as follows: The valuations of expected high-growth stocks are necessarily on the low side, if we were to assume these growth rates will actually be realized. In fact, according to the arithmetic, if a company could be assumed to grow at a rate of 8% or more indefinitely in the future its value would be infinite, and no price would be too high to pay for the shares. Further down he continues: There is really no way of valuing a high growth company(with an expected growth rate above, say 8% annually), in which the analyst can make realistic assumptions of both the proper multiplier for the current earnings and the expectable multiplier for future earnings. A number of questions come to mind immediately to me. How can one say that no price is too great to pay for the shares of any company, even one growing a 8% indefinitely? Certainly, if XYZ Corp was assumed to be growing at 10% indefinitely and the shares were priced at $100, would $1000 be too much to pay? Graham was not too clear on this although I do not believe he would have shelled out the thousand dollars. Call it a hunch<GGG> But I have always wanted to know exactly why no price would be too great to pay for the shares. It was not too clear on this either. Additionally, he said no price would be too great to pay for a company with 8% indefinite growth, yet on the previous page there is a chart showing approximate multiples to be given to a company with an X% growth rate. A company with an expected growth rate(EGR from now on) is said to warrant a multiple of 22.9. On the next page however, he says that no price is too great for a company with an EGR 0.8% higher! This is quite a discrepancy, no? In case anyone is curious the multiplier which they assign to a company with an EGR of 20% is 48.5. Anyone whoever argued that AMAT was overvalued with a 50 P/E would probably get an argument from Ben Graham, Warren Buffets teacher. Thanks for any thoughts, Brian