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|Subject: Re: Selecting stocks the Ben Graham way||Date: 12/8/2004 6:37 PM|
|Author: PaulEngr||Number: 34776 of 46872|
It may just be that the market has a very hard time valuing knowledge and overvalues those more dependent upon "knowledge" than "bricks and mortar".
I'm not pointing to propping up the MSFT's of the world. On the contrary, It's not just an MSFT problem.
Actually, the problem creeps up with tangibles too. The problem I've had with book values is that depreciation schedules are at best, laughable. And that's just on the tangible assets. An old circa 1930's coal fired power plant is very valuable these days due to restrictions on new construction (environmental permitting). And when's the last time you saw a Fournier machine in a paper mill considered "scrap", even though the value is zero on the books? On the other hand, computers are depreciated at 5-7 years last I knew. Do you actually get that much mileage out of your office PC's?
At a plant I worked at, due to restrictions on financing in Europe (Europeans do not recognize the concept of "good will"), they revalued all the assets in several plants. After resetting the depreciation schedules, a 30 year old plant I worked at consistently ran "in the red" simply because depreciation ate up over half the costs. And the plant really, truly could have desperately used some capital to straighten out some of the sins of the past. So, is the super-low P/BV deserving in this case, when you have a plant with a $2MM/month operating budget (before depreciation) bringing in $3MM/month in revenues?
When you get to intangibles (people and "intellectual property"), book values are pretty much out the window.
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