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Stockwatch: separate checks, please.

Deep Broker, our confidential Wall Street inside source, was riffling through a thick stack of graphs and charts when we dropped in for our quarterly visit. 'Damn," he said. 'There's got to be a trend or two here somewhere. But I just don't see it." Frowning, DB handed us his latest report on software stock prices:

12/31/89 3/31/89 6/30/89 +%QTC +%YTD

Software Toolworks 5 7-1/8 9-3/4 +36.8% +95.0%

Hindscape 2 1-3/8 2-3/4 +100.0% +37.5%

Lotus 18-1/4 20-1/8 23-1/4 +15.5% +27.4%

Autodesk 29 3 0 34-3/4 +15.8% +19.8%

Software Pub. Corp. 19-5/8 18-1/8 23-1/4 +28.3% +18.5%

Adobe 24-1/2 21-1/2 26-1/2 +23.3% + 8.2%

Springboard 1-5/8 1-7/8 1-3/4 - 6.7% + 7.7%

Sierra OnLine 10-3/4 11-1/4 11-1/2 +2.2% + 7.0%

Mediagenic 6-1/4 7 6-5/8 - 5.4% + 6.0%

Timberline 5-7/8 5-7/8 6-1/8 +4.3% + 4.3%

Microsoft 53-1/4 49-7/8 53 +6.3% + 0.5%

WordStar (MicroPro) 2-1/4 2-1/16 2-1/8 + 3.0% - 5.6%

Index Technologies 9-1/4 8-1/2 7-3/4 - 8.8% -16.2%

Ashton-Tate 21 20 17-1/2 -12.5% -16.7%

Samna 5-1/8 3-7/8 4-1/8 +6.5% -19.5%

Aldus 21 14-3/4 15-3/4 + 6.8% -25.0%

Phoenix 15 16-1/8 11 - 3.2% -26.7% "You're right," we said. "it's a mess. Has Wall Street gone off the deep end again?"

DB shook his head. "The truth is, the stock market has become extraordinarily efficient at valuing companies. Remember, every price you see reflects literally thousands of independent decisions by investors, analysts, and other stock watchers. These people occasionally fall into the grip of a kind of mass hysteria, of course, but the overall valuation process is neither arbitrary nor casual."

"So why don't we see any valuation trends here?" we asked.

"Good question." DB stared out the window. "Let me think out loud for a moment. In most industries, stock prices do move in ways that reflect broad trendB--a change in raw materials prices, say, or a far-reaching legal decision, or fluctuations in consumer demand. What's good for General Motors (to coin a phrase) is probably going to be good for Ford and Chrysler as well.

"But I'm beginning to realize that software prices may be an exception. Software companies usually compete in niche markets, they're rarely affected by economic upticks or downturns, and it's hard to think of anybody--suppliers, distributors, big customers, or government regulators--who has any real control over how a software company runs its business. In effect, we're looking at a bunch of unique companies in unique markets, not at an interconnected industry."

"Okay," we said. "But what about the trends we've watched in the past?"

'I admit we've seen trends (or maybe they were just the Wall Street equivalent of a UFO sighting). If you look back at the valuation shifts we discussed over the past few years, I suspect you'll see that investors were still trying to understand software as a generic business. When one company screwed up, wall street decided the whole software industry was run by flakes. And when others started coining money, p/e ratios jumped across the board. Now the investment community has taken off its training wheels and can look at each company on its merits."

"You're not really trying to say that wall street finally understands the software business," we protested. 'That's ridiculous."

"Probably," DB said."But until somebody invents a better theory, I'm afraid that's the best explanation I've got."

LOTUS developer David Reed on why no one in his company last year noticed that the development schedule for Release 3 had fallen behind: 'All of us jointly lived in our mutual illusions.' (Quoted in The Boston Globe, 6/18/89)

ASHTON-TATE chairman Ed Esber on his company's recent admission that it had overstuffed its distribution channels: "it is kind of like an alcoholic who stands up and says, 'I am so and so, and I'm drunk, and I need help.'" (Quoted in computerworld, 6/19/89)

SANNA president Said Mohammadioun on why Microsoft is ambivalent about Ami, his company's Windows-based word processor: "Their ideal is that we develop a Windows word processor but don't sell any." (Quoted in Computerworld, 7/3/89)
COPYRIGHT 1989 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:software stocks
Date:Jun 1, 1989
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