September 23, 1999
Today Microsoft President Ballmer told journalists at a tech conference in Seattle, "There is such an overvaluation of technology stocks, it is absurd," he also said that includes Microsoft.
This comment is reminiscent of the one made by Greenspan in 1996 when Greenspan warned of irrational exuberance in the stock market.
Why these are stupid comments is because there are too many stocks in the stock market and too many tech stocks for anyone to state that 'all' the stocks or 'all' the tech stocks are overvalued when clearly it is only certain stocks or certain tech stocks that are overvalued.
You may ask what's the big deal, why is it important to make it clear that it's only some? Because those who control the vast majority of investment capital are the institutions, and institutional managers, for the most part, are sheep. They don't think too much about the specifics of comments made, but simply react to them the same way everyone else is, and if that happens to be selling, that's what they all do.
Many times when there is a panic like today on NASDAQ, the financial news will blame it on 'investors.' By using the word investors it takes the blame for the panic selling off those who are really to blame, the institutions. Small investors don't have the buying or selling power to cause a 100 point decline on NASDAQ, only the institutions have that kind of power. (To read more about the institutions and panic selling read: Wall Street Week: I Agree, Institutional Investors are the Panic Sellers.)
Others made comments about Ballmer's remarks. The Street.Com states, "Ballmer's Babbling Blunder." This is like the pot calling the kettle black. The Street.Com is nothing more than opinion, just like Ballmer's comments and The Street.Com blunders as much as anyone else. The real issue here is why everyone listens to these people in the first place.
Reuters stated, "Many analysts also said they resisted the notion of Microsoft's Ballmer making such a call." Again, you talk about the pot calling the kettle black, stock analysts are listened to more than anyone else regarding individual stocks, but they have some of the worst track records as a whole on calling the direction of stocks. Analysts also have a vested interest in talking up certain stocks, not based on facts and fundamentals, but based on how much money the company they work for can make off an IPO or secondary offering of the stock they're talking up.
Getting back to Ballmer's comment about tech stocks being overvalued. There are many stocks in the tech sector that are clearly overvalued. If Ballmer had been specific and talked about his own company that would not have been a problem. He could have told the public that Microsoft's market capitalization is so high now that if the stock adds just 12 more points it will increase Microsoft's market cap by $60 billion. And at Microsoft's current 5 year earnings growth rate it will take Microsoft 4 years to earn that much money.
Even if Ballmer had made the above comment, knowing the institutions, they would probably buy more Microsoft on the news. Institutions are more concerned about liquidity than fundamentals. And if and when the stock market tanks, don't forget that the main reason for it will be the fact that institutions had lost sight of buying stocks based on fundamentals and instead bought based on liquidity and momentum. Don't let the institutions, financial news, and politicians get away with blaming you, the small investor, for it. It won't be your fault.
One final note. Today tons of tech stocks lost over 5% of their value in one day. Did you notice how no company came out and told off Ballmer or anybody else making stupid comments? The reason why you didn't is because companies do not care about their stock prices in the short term. You may have just lost thousands of dollars, but the CEO of the company could care less. They only care about the fact that they know they will still get their salary and bonus for the year (which, on the average, will take you your whole lifetime to earn), and they know if the stock doesn't come back, the compensation board will just reset the strike price for their stock options to a lower value. If you want to believe the company does care about the stock price, you have to ask yourself why in the hell doesn't the CEO get off the golf course and raise a little hell with those making unsupported comments about their stocks (or lumping their fundamentally valued tech stock in with all the overvalued ones).