A “B.T.” letter to The Motley Fool
After reading the various "replies" I am struck with the use of words like "value" and "P/E Ratio" etc. You would have to be a magician to make accurate sense out of any of the data put out by a specific company in a "financial review". How their accountant figures "good will", expenses, investments, etc. is a matter for he and his client to decide (without going to jail, that is!) We'll never know if the profit is part from operations, and part from re-evaluation of property, inventions, etc., or/and , part from investments.
P/E ratio is suspect! But so is "valuation" or "revenue", or etc, etc.!
The previous "replies" include these undefined terms and are not much help in deciding what to pay for a stock. If I decide to invest my profits in more advertising this year to get more of a client base, it isn't that I've not made a profit but it is my decision to use that money to gain market share. This would lower my P/E ratio. But, is it a good plan for the future of my stock? As a buyer of this stock, how would I evaluate this decision? How do I evaluate the price I would pay for this stock?
The idea that something is overpriced or under priced depends on how you would evaluate this set of conditions. Also, you would have to rely on the numbers given by the company for any of these considerations.
I believe all of this is a definition of "RISK".
Are we making a decision of valuation or are we merely "gambling"!!!
I would respect your response.... glfstudent
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