|Blue, good morning...a couple of points shamelessly borrowed from "Devil Take the Hindmost" which I |
ardently recommend for anyone on this thread who may not have read it.
<<Fair value is whatever a willing buyer will pay to a willing seller>> Much discussion directly stemming from the book chapter regarding "Tulipomania"...Semper Augustus bulbs sold for 1200 florins, the price of a two-story
townhouse at the time. Your quote comes right out of three bubbles in the book, including tulips and John Law. The very words were used at the respective times. It is a notion that has been around a long time and is right out of Milton Friedman's thesis that was the foundation of much modern economic theory. I cannot expound at length because I was a math major, not an economist. My contention is that ultimately stocks might best be viewed as worthy of buying
only in light of 1) greater fool theory, to wit, finding someone else who will buy your CSCO shares at 120
if you paid 80/sh for 'em OR 2) and more reasonable in my mind, what is the value of the dividends AND
price appreciaton in normal times, ie not bubbleland?...most of the stocks I listed yesterday on the DOW,
those like BA, UTX, JNJ, HWP, AXP, WMT, HD, INTC, C, T, MSFT (zero dividends) ALL with divdidends
less than 1.7% qualify as definitely overvalued in my book. I must admit I have made big money in this
market, most notably with QCOM, but I step across the line in the sand drawn by Buffett. I think this market is absolute madness.
In reference to derivatives, like nearly anything financial. I am in complete agreement with you that they
are not inherently "evil" but like so much in that book I reference that can not be quoted at great length, there
is great danger to the ENTIRE SYSTEM, e.g., Greenspan's bailing of LTCM. LTCM had less than 50 billion
in assetts but they were so entangled with derivatives (margins, derivatives on derivatives,etc.) that the failure
of LTCM threatened to bring down the world financial system. I think there is more danger there than most
of us really have a clue, and so does the author of the book.
good discussion this am, Thread...thanks