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Folks, I have given up.

I was going to write a careful and decisive post about the current mania. It was going to be all about the Conspiracy of Silence that value investors are faced with. But I just don't have the energy.

I wanted to talk about this Conspiracy of Silence because of its incredible success. The players in this conspiracy, the investment bankers, brokers, financial media, and money managers have been able, mainly through silence, to convince many otherwise practical and thoughtful Americans that this time it is different, that trees do grow to the sky, that the old methods of valuation no longer apply, and that half a dozen paradigms that they didn't even know existed have simultaneously shifted. My hat, a Red Hat of course, is off to them. Bravo.

I was going to talk about a new taboo has been introduced by this unholy cabal: The Taboo Against Knowing How Markets Work. They have somehow convinced their constituents that they are currently entitled to annual gains in excess of 20% a year, 85% if you invest only in the NASDAQ. And the wonderful thing is that this will go on forever. And they have somehow convinced investors that the prospects of the companies future cash returns have nothing to do with current market value. They don't preach this heresy of course, but they confirm it by their silence. Today, the financial media, the investment bankers, the stock brokers, and the money managers are all becoming rich by giving their silent consent to this Taboo.

I was going to talk about Wall Street Week, a show I have watched for almost 30 years. It certainly has not been a perfect show over that time period, but, to my memory anyway, it has always taught a common sense approach to the investment process. Certainly Louis is the eternal optimist and has a hard time seeing the down side of anything outside program trading and taxes, but my feeling has always been that he presents a rather balanced show. I don't recognizee it anymore. The most a guest or panelist can say regarding the froth in today's market is that some stocks have become a little bit, not much, but just a little bit stretched in their valuations. I have yet to see any of them to unequivocally state that we have a full blown, honest to goodness mania on our hands. Where do these people come from?

So I give up.

I wanted to ask if an investment banker is going to tell his clients that Red Hat , with sales of less than $20 million on an annual basis, is not only not worth its $18 billion market capitalization, but is probably not even worth 1% of that $18 billion? Is an investment banker who wants to suck in even more investors on its next installment of Linux, The Microsoft of The Next Millennium going to be anywhere close to honest with his clients and tell them the truth? Or is he going to continue to practice The Taboo Against Knowing How Markets Work, while making his fortune on the next grossly overpriced IPO?
Today, the fact of the matter is that junk sells. Much of what is being placed in IPO's would never see the light of day in a more sane and honest environment. There is nothing easier than creating junky companies, and the investment banking community has found the worst of the worst. They have no shame. But this would not work without the evil influence of The Taboo Against Knowing How Markets Work. If investors begin to understand how markets work, they may start asking for value received for value given. That cannot be allowed.

I was going to talk about money mangers; maybe even money managers that you respect. They certainly don't want to scare off potential investors in their hot, new, mutual fund, "The New Era Linux, Internet, and Biotechnology Fund," by badmouthing the practitioners of the Taboo. For instance, will they be willing to tell you that is really just a sophisticated financial scheme that requires constant confusion of its operating results by the continual addition of new loss producing lines of products. Will they tell you that's real product is not books or CD's or toys, but a concept, The Amazon Model. The Amazon Model states that you must lay claim to being the first mover in an internet niche, constantly expand your product line, incessantly promote your model, and keep your financial plates spinning to keep your detractors off guard. It demands that you never define yourself as a "just." That would be the kiss of death. As soon as you define yourself as, for instance, "just" a bookseller, the market will value you accordingly. No longer will all the hopes of e-retailers everywhere and e-retailers forevermore be factored into your stock price. What is a bookseller worth? If you are just a bookseller, the $24 billion market capitalization will dwindle to $2.4 billion, stopping only for a short respite until it gets to something like $240 million. And when that happens, how do you keep this puppy going by continuing to milk the public markets for more money? Once started, you must continue to sell The Amazon Model, disguising yourself, ( The Taboo Against Others Knowing What You Are ) or the scheme stops. Of course you must be leery of models. One model, AOL bit the dust today. It is a young company, yet had to make the largest merger in history to get access to Time Warner's big pipe. AOL, so young, and already obsolete.

I was going to talk about stock brokers. They reinforce the Taboo. How many of them have turned clients away from Ebay? Will any of them suggest to a client that a company that is going to make only a few million dollars this year, that is going to have all kinds of competition, and does not yet have a proven operating history, may not be worth the $18 billion that the market is asking for it? Or does the half a billion dollars of daily activity in Ebay encourage them to continue honoring the Taboo.

I was also going to talk about why there is so much discussion of value here on the BRK message board? Investors have probably never before been asked to place values on companies that are as early in their operating life as now. So the value question is there in hundreds of companies, begging to be answered. In more respectable times, an IPO would have products, assets and earnings. Today, you need all but three of those items. So how do you compute value with so little information, background and history?

Now, virtually anyone can have a successful IPO underwritten by the largest and most respected houses on Wall Street. I admit with some embarrassment here that I have yet to float an internet IPO myself. Maybe next year. But you would have not gotten in the door in the past with the type of junk being sold today. Now, they will search you out. Very seldom in the modern history of markets have so many grossly overpriced securities been offered for sale. So value is discussed here because today there is a bigger need to understand it than ever before. Value is discussed here because of the Ebays, the Amazons, the Red Hats, the Conspiracy of Silence, and of course, the Taboo.

And if I had but the energy, I would talk about the assault of the propagators of the Taboo on the value investors. The Taboo Against Knowing How Markets Work requires that the value investor be made wrong. I am not just saying that they must make the ideas behind value investing, the concept wrong, though they will do that also. But, I am saying that they will attempt to make you, the individual wrong. They are limited in their attacks on the concept of value, so they will attack you personally.

So learn to recognize the arguments of the preachers of the Taboo: You have not done your homework. Don't you see, this time it is different. We are in a new economy, era, technological revolution, millennium etc. A paradigm has shifted. You must understand, these companies will invent all kinds of new wonder products that will make them golden. Sales are growing so quickly, how can you say that 3,000 times revenues is unreasonable? The market for this product will be huge. The old value concepts do not apply anymore. You do not understand, maybe you can't understand.

Remember when you were a youngster and how powerful peer pressure was? You either join the group or be singled out as different, defective, unwanted. How hard is it today to hold to value principles when you are being told how wrong you are? It seems that easy profits are waiting for those who are simply willing to conform to NewValueThink. We are all free to do so. However, those who want to sleep well at night will need to embrace the Taboo.
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