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January 4, 2000
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The "NewValueThink" is simply this: Value is all things relative. What works for Starbucks and the Limited may not apply to Dell, Gateway and Cisco. This is what reality is telling us.
The "NewValueThink" is simply this: Maybe the planets have lined up differently. Maybe the paradigm shift was of such velocity that we were kicked into a altogether different dimension. Or maybe words and numbers transmitted over the internet have developed meanings that are completely different than that traditionally assigned to them. Anyway, we are not sure. But for some reason a dollar of cash flow received one year from now has a wholly new and greater value when earned from a tech.com company than from a Bricks and Mortar Old Economy company. Maybe there was some bizarre disruption in the space/time continuum that now requires different mathematical laws to be applied different companies based upon their industry classification. A dollar is not a dollar unless earned by a dotcom. A dollar earned by a Bricks and Mortar Old Economy company is now expressed in some debased currency. For many years Earth People have been attempting to value securities or assets based on the discounted value of future cash flows. The "NewValueThink" has obsoleted this practice though we are not sure why. Maybe we just lack a prophet of sufficient elegance to explain this new paradigm to us. Could this prophet currently be among us and we do not recognize him?
|"A dollar is not a dollar unless earned by a dotcom."|
Value has become relative.
When did this great thing happen and why wasn't I notified? I would value all securities the same way. I would project out their anticipated free cash flows and discount the results back at some appropriate rate. The growth rates will vary from company to company, but free cash flow is free cash flow; a discount rate is a discount rate. This works for Starbucks ( I think so anyway, someone correct me ). But this method which has been applied to Bricks and Mortar Old Economy companies such as Starbucks and the Limited does not apply to Cisco or Dell or Gateway?
This is what reality is telling us.
But if reality is telling us that this does not apply anymore, what new discipline has NewValueThink substituted for our old tired ideas of value?
The problem is not the market, or the pricing, or the P/Es. The problem is in our perception of those values.
The fault, dear Brutus, is not in our market, but in our perception.
Yond' Buffett has a lean and hungry look;
He thinks too much: such men are dangerous,
Sitting on $35 billion of cash and equivalents.
So it is our perception of the new NewValueThink that is wrong. The market, the pricing and the PEs are right on, we just did not adjust our perception when the paradigm shifted. How could such a tragedy happen to so many?
Someone is going to take the basic tenets of value investing espoused by Graham, modified by Buffett, and a strong knowledge of technology companies and the MODERN marketplace.
And when this new prophet makes himself evident to us, how will we know him? Will we recognize him by his ownership in Red Hat?
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