Capital account : a money manager's reports from a turbulent decade (1993-2002) by unknow

Author:unknow
Language: eng
Format: epub
Tags: Budgeting & financial management, Economics, Stocks & shares, 21st century, c 1990 to c 2000, Marathon Asset Management, Economic Conditions, Business & Economics, Business / Economics / Finance, Speculation, Personal Finance, Personal Finance - Money Management, Finance, Investments & Securities - Stocks, Education / Professional Development, Business cycles, Personal Finance - Investing, Stock exchanges, Aktienmarkt, Börsenspekulation
Publisher: New York : Thomson/Texere
Published: 2004-10-14T22:00:00+00:00

FIBRE-OPTICAL ILLUSIONS

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14. The relative euphoria of equity investors compared to bond investors. Businesses such as Williams Communications are valued by the equity market at multiples of invested capital whilst their bonds are rated as junk. These two views are not necessarily contradictory but imply that equity investors have made a more generous assessment of the likely cash flow from the business than their bond owners.

15. High levels of institutional ownership of technology stocks.

Growth funds have tended to be overweight in the sector, partly as growth has been hard to find elsewhere in the market. Increasingly, traditional value investors have followed in their wake. Positions may also be entrenched: one large, Boston-based, mutual fund manager has over 40 per cent of a US portfolio in technology shares alone. When challenged by a respected Wall Street analyst, he refused to consider that the shares might be expensive. His reasoning appeared to be that they had not spent two years building these positions to change now!

16. The narrowness of earnings growth in the market will pass.

One reason why technology is particularly strong at the moment is the lack of earnings growth elsewhere in the market. This process is likely to prove cyclical, rather than secular, and the value distortions will come to pass. At the moment, however, there is an almost perfect symmetry in the stock market with overvaluation of technology shares offset by the cheapness of many ‘Old Economy’ stocks.

17. Speculation. The rise of technology shares has been due mainly to expansion of the price-earnings ratio rather than earnings growth.

18. The ratio of inside sellers to buyers in technology is at a record high. This is in contrast to US firms in general where director purchases currently outnumber sales by two to one. One could also point to the examples of Steve Case, Founder and Chairman of AOL and Bernie Ebbers, President and Chief Executive of WorldCom, who this year acquired large positions in Maui Land & Pineapple and Joshua Timberlands respectively. Neither of the purchases are in the New Economy field.

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