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To: the new spoosman
You know what's funny - we're pretty much on the same page

but....

I don't use the "F" word (fiat) as it's been used too much by the lunatic fringe and I don't think I come across as delighting in the fall of many who were brainwashed by talking heads.

When I get a call from someone who's anguishing over losses or thinking of buying something that is in my opinion overvalued I simply ask them what's the p/e? And calmly explain that 10 times earnings is historically viewed as fairly valued. And then I tell them "If you simply MUST own it why don't you wait until it goes on sale at bla bla bla (whatever the "on sale" price would be). And then I have them look at the dollar. And then I explain that.

Become the New New Spoosman and seek to educate those who have a brain to ask.

You're in a position to help quite a few people. Quite a few people who've been screwed by the powers that be and who would be grateful for your assistance.

(Sorry to post and run for the night...morning comes early here).

6 posted on 06/19/2002 10:20:12 PM PDT by d4now
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To: d4now
calmly explain that 10 times earnings is historically viewed as fairly valued.

That's a great point, d4now. However, the p/e ratio, by itself, excludes the most important factor in stock valuation - earnings growth %.

When I value a stock, the first thing I look at is p/e ratio. Next, I look to see, based on earnings growth % over the past 5 years and expected next 5 years, how long it will take for the "e" to equal the "p." The sooner the better (because of less risk).

For example: ABC trades at $10/share; the p/e ratio is 20/1; the earnings growth is 50%; the stock earnings equal a 1/1 p/e ratio in year 6; and thus the present fair market value of the stock is around $47 (taking the earnings growth over 30 years and discounting it by an estimated 30-year note rate of 5.5% (currently it's actually 5.38%)). I'd buy that stock at $10 (in fact, I'd buy longer term call options on it).

10 posted on 06/19/2002 10:47:58 PM PDT by JamesWilson
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