marsdeals

Which Way is the Market Headed? No One Knows

I don't believe we can compare long-term PE ratios of a manufacturing economy (pre-1980) and the service economy of today. The ROAs on a service economy are much higher than that of a asset-intensive manufacturing economy.

If you compare an internet company to a manufacturing company -- both with identical growth prospects and $5 million of earnings -- which would you value higher. I would value the internet company much higher because it is able to generate those earnings with far fewer assets. Thus the capital needs are less so the ultimate return to investors in higher.

I think that explains much of the increase in PEs over the past 20 years. That is not to say that we will not have bear markets again -- we will. But I would not expect a service economy to ever return to the historic means that are comprised of mostly manufacturing economy years.

Why I'm Not Buying Crocs or Heelys: A Fast Eddie Story

Vikas,

The difference between MOT and CROX is huge. MOT is a multi-billion company with a diverse product offering. CROX is a one product company whose one product is currently a huge fad.

If someone tells you that they can predict the exact size (or even a range) of a fad's potential, is blowing smoke and you should turn and run from what they are selling. I wish I could predict when it will end because then I could short the stock. But I am not that smart, so I just avoid it.

Why I'm Not Buying Crocs or Heelys: A Fast Eddie Story

Boris,

I sure hope your comment is tongue in cheek. Croc's and high performance, cmon'. They are light I will give you that but other than that they are just plastic/rubber clogs. They don't even stay on your feet most of the time.