On Wed, 5 Jun 1996, Bill Hutten emoted:
>
> Uhh, this is Evan "pink, at least" Kirchkoff arguing seriously that _stock
^^^ (s.b. "Kirchhoff")
> market valuation_ is a serious measure of a companies health? Excuse me?
> :)
How about: stock market valuation is a serious measure of (as in: "the
only measure"; as in: "analytically definitionally equivalent to") what
speculative investors think of a company's health. This would include (i)
people with more background knowledge than either of us, or at least (ii)
people who have actually read the Apple annual reports and have gotten all
the numbers, not just the Apple-boosting ones. Yes, technology investors
tend to be twitchy and to run in silly faddish packs, but if Apple's
status was as uncompromisingly rosy as your numbers make it out to be, the
twitchy faddish investors would be rushing _towards_ it in packs, driving
its price up closer to Netscape's. So at the very least, a 50% plunge in
stock price in a year is a reasonably reliable sign that the company is
not exhuding an air of healthiness.
On the other hand, Apple PR happyspeak about cash reserves would seem to
be somewhat less reliable. I know which one I'd pay attention to if I
was thinking about putting my money on the line buying Apple stock. Or
Apple computers.
> I think I'll assume that your understanding of stock market performance and
> it's relationship to the real (ie physical) economy
What exactly do you think all those traders are doing down there on the
floor, playing some kind of spectator sport in loud jackets for the south
Manhattan tourists? :) Excuse my Little Golden Book knowledge of
capitalism, but I'm pretty sure it works something like this:
(1) Corporations are the backbone of the modern economy, and are
responsible for much of the activity therein.
(2) Most large corporations are publicly traded -- that is, the primary
source of their operating capital is money given to them by stockholders.
(3) Therefore, much of the "real" economy (or at least the portions of it
relevant to this argument) is run entirely for the benefit of
stockholders. Every corporate decision is made on this basis, period.
(Let's leave aside the problem of boards of directors being corrupt
puppets of management and thus failing to represent stockholders'
interests adequately).
(4) Stockholders invest money expecting to get more money back, not
less. They don't really care about the moral right of "good" companies
to survive and produce competing computer platforms.
(5) Therefore, a company that takes stockholders' money and promptly
makes half of it vanish is in no sense a healthy, functioning company,
since its _only_ goal (namely: making money for stockholders) has
completely failed. The only reason not to rip it up and sell it for
parts immediately is the chance that one day in the future the intact
company might produce more money for the stockholders than the ripped-up
bits would bring right now at a fire sale. The likelihood of this
happening tends to seem smaller as time goes on, and at some point a
company that can't bring its stock price back up to hopeful levels _will_
get ripped up and sold for parts, just to cut everyone's losses. If
management is not willing to rip the company up when this point is
reached, the board of directors should fire them and replace them with
somebody who will.
Somebody correct me if I'm wrong about any of this.
> is more sophisticated
> than that, and you're making this point just to advance (if that's the
> word) your arguement...
^^^ (s.b. "argument")
And a patronizing good morning to you, too! ;)
-- Evan Kirchhoff, kirchh@umich.edu