Have you noticed the stock market getting a bit . . . rocky lately? The way it normally works, the market oscillates pretty wildly around underlying ‘value,’ hard as that is to pin down. For a while, with a specific stock — or stocks in general — prices may be a mere fraction of what a sensible, hard-headed businessman might pay, based on prospective earnings. Then the price may trend up to that reasonable range – and keep going, a little or a lot past that range. And then, sooner or later, fall back to the reasonable range, and back past that reasonable range. A complete cycle can take decades.
Of course, it’s never quite so simple as this, and, in any event, the ‘reasonable range’ may change over the years, as the company’s (or the market’s) prospects improve or deteriorate, and as the general level of interest rates (read: competing investments) rises or falls. And none of this is very precise.
But when good companies like Dell rise to seemingly absurd prices – on February 3, 1999, I pointed out that Dell was valued by Wall Street at ‘more than General Motors, Ford and United Airlines combined’ – they tend to fall back. Since late Spring, Dell stock has fallen by two-thirds.
And when iffy companies like Priceline or Amazon, that have a lot of promise but are unproven as moneymakers, reach crazy heights – 113 for AMZN and 105 for PCLN – they, fall back even further. Today, Amazon is down to 24 and PCLN to 2½.
And then, typically, they fall past their reasonable valuations, as people grow disillusioned with the market and their unreasoning euphoria gradually turns to unreasoning despair.
I’m not sure we’re there yet with a lot of stocks. (Dell is still valued at $50 billion, more than either Ford or GM, and 29 times its trailing earnings.) But when we do get there, bargains will become irresistible – and, with time, highly rewarding.
Some of today’s stocks may get a nice bounce after tax-selling pressure lets up. Others may have a ways further to fall, and still others – quite a lot of them — may disappear altogether.
Martin dellaValle: “Note to Rulison Evans — There is nothing uniquely American about clean tap water. Open a faucet pretty much anywhere in Western and Northern Europe, and not only is the water perfectly healthy, it also tastes better than what you can get anywhere here. There is, however, something uniquely American about the assumption that all good things, from clean water to democracy, are uniquely American.”
Dozens of You: “I hate to be picky, but when Ben Franklin said “neither a borrower nor lender be,” he was actually quoting Shakespeare’s Polonius, in Hamlet:
“Neither a borrower, nor a lender be;
For a loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all; to thine own self be true,
And it must follow, as the night the day,
Thou canst not be false to any man.”
☞ You’re right, of course. What’s a little scary is that I made this same mistake, and the same subsequent apology, three years ago. Who says you only live once?
Scott Flanagan: “Maybe you pronounce forte as ‘fort,’ but do you describe certain foods as healthful? If so, good for you. Otherwise, if you refer to ‘healthy foods’ I hope you mean food that isn’t sick. It is true that hamburger isn’t a healthy food, but only from the cow’s point of view. On the other hand, that light salad isn’t healthy, it is healthful, unless you are talking about those healthy lettuce plants in your garden.”
Kevin Clark: “‘Every vote should be counted.’ (Except for absentee military votes, which I’m fighting to exclude.) ‘There are thousands of ballots which have never been counted.’ (Except for a couple times by the normal (machine) vote counting procedure.) Care to retract your column(s) about how Gore’s tendency to lie is all a Republican myth?”
☞ Huh? What has this got to do with lying? It’s like saying “Bush lies in matters of life and death!” because he said Cheney was in good health when he had had a heart attack. Ridiculous. Can we please stop accusing these men of lying?
As to your two examples:
<< “Every vote should be counted.” (Except for absentee military votes, which I’m fighting to exclude.) >>
Don’t you think a store that accepts checks “from everyone” should nonetheless not be required to accept checks that are unsigned? I guess you can argue that a soldier’s unsigned, unpostmarked ballot should count, even though the law says it should not, and even though someone could easily fill out a phony ballot and/or mailed it after the election. That would be an honest difference of opinion. Let’s let the court decide without charging hypocrisy or dishonesty. If you disagree, I’m going to ask you to start accepting unsigned checks.
<< “There are thousands of ballots which have never been counted.” (Except for a couple times by the normal (machine) vote counting procedure.) >>
Say you have a dollar bill that is constantly rejected by the Coke machine. Are you really comfortable with my saying it is worthless? That may be your position, but surely you would agree we are entitled to believe that such a dollar is still worth $1, even if you have to look at it to know. And that we are neither hypocritical nor liars for believing this – no?
Have a great weekend.