Forum Archive Index - May 2000

["Ben Dutton" <bendutton@sharechat.co.nz>]

Hi Neil,

Yup - I agree with what you say - of course one has to determine if a share
is appropriately priced before making the buy decision.  But what's an
"appropriate" price?

Looking at Telemedia, it's currently trading at $3.70.  That's down from its
all time high of $10 on March 30 - and nearing it's one year low of $3.50.
So is TMN appropriately priced?  Is it cheap?  Is it expensive?
Unfortunately one cannot apply Buffetology to technology stocks (As the Sage
of Omaha freely admits himself).  Mr Buffett certainly would never touch
TMN - it has a P/E ratio of 284.62.  But others have, betting on the fact
that it will be a winning company in the future.  They've even driven the
share price up to $10.

Thus, by investing in TMN at its current price, one is betting that the
company will continue to grow and prosper at a rapid pace.  I freely admit
that this is a bet - but Chris Jones convinced me that he was the man for
the job.

Of course, there may be problems that I'm unaware of - Lincoln Watson made
some good comments yesterday about the possibility of TMN not being able to
deliver at its current growth rate.  This may be true, I don't know.

For better or for worse (and we could discuss this for weeks :) tech stocks
in today's market do not follow traditional valuation techniques.

Best Regards,

Benjamin Dutton


----- Original Message -----
From: <neil.selman@gfmb.co.nz>
To: <sharechat@sharechat.co.nz>
Sent: Wednesday, May 10, 2000 9:28 AM
Subject: Re: [sharechat] IT Investment Forum Report - Telemedia


>
>
> Ben
>
> Thanks for the info re Telemedia.  I just want to pull you up on one
point.
>
> I understand that you liked what you saw of Chris Jones and Telemedia, but
then
> you stated "if I had any available funds, I would invest in Telemedia
today".
> My concern is that, just because you just found out that Telemedia is a
good
> company, doesn't automatically make it a buy.  Not that I subscribe to the
> efficient market theory, but it would say that the market already knew and
> reflected what you just found out.   Ie the share is appropriately priced.
Now
> before you make a buy decision, you have to determine if the share is
> appropriately priced.
>
> "You should only buy if the current share price offers a substantial
discount to
> the intrinsic value of the company" (a bit of Buffetology).
>
> I know that it isn't easy to value relatively new start up companies, but
a
> valuation must form the basis of your decision making.  Then when any new
news
> hits the market you adjust your value drivers and determine a new
valuation and
> move rationally.
>
>
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