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Rekenthaler Report

Does Price Matter?

I swear on Custer's grave it does.

Custer's Last Stand
Don't know if you caught it, but tucked away in The Wall Street Journal a couple of weeks ago was this gem from Robert Froelich, chief executive of Kemper Funds. Said Froelich, the worst mistake an investor can make is to avoid buying "all the right companies with the right people with the right vision because the stock is too high."

As Bill Walton would say, "That's terrible!" I appreciate the spirit of Froelich's advice--in the New Era, don't rush to apply the Old Rules--but deplore his timing. Three years ago, when growth-stock price/earnings ratios were a moderate 25 to 40, and most investors were still leery of technology companies, Froelich's bravery would have been commendable. Today is different. Even after Nasdaq's recent troubles, many companies sell at 100 times earnings or 30 times revenues. Paying such multiples on faith in management's "vision" is like deciding that with 265 good men by your side, you don't need to scout the enemy's forces. It didn't work at Little Big Horn, either.