FYI; Almost fifteen years ago, on April 1, 2000, we wrote and published a piece entitled “Will the NASDAQ sell-off become a crash [1]?” We have now retrieved that piece from our archives and posted it on our website.
In preparing that piece we evaluated the stock market and made a theoretical calculation in which we merged two companies, Cisco and Microsoft. We assumed that their reported earnings were accurate. We found that the two companies merged together had earnings of $10 billion and their merged theoretical market valuation amounted to $1 trillion. Our conclusion at the time was fairly straightforward. There was nothing wrong with either company. Both Cisco and Microsoft were fine, large, developing, worldwide leaders in the Technology sector. The stock price, however, was wrong. At 100 times earnings, the price of the theoretically merged company’s shares was not justified by any valuation technique. The combined GDP of all countries in the world was estimated at $30 trillion.
Regards,
Ted
http://www.ritholtz.com/blog/2015/03/nasdaq-5000-crash-bubble-fair-value/print/
