Nortel drop doesn’t surprise Young 25/10/00

He warned IE.com readers back on July 21 that Nortel was overvalued. The stock was at $119.15, at that point. Young lamented that active managers were beating the TSE 299, but getting killed by Nortel.

“A dollar of earnings from Nortel is not worth four times a dollar of earnings from the banks, it just isn’t,” Young said in July, adding, “Even if Nortel is growing twice as fast as the banks, as most analysts project, it isn’t growing fast enough to justify the huge premium it is receiving in the market.”

He predicted Nortel would fall, the indexes would be gutted, and active fund managers will be vindicated. He counselled advisors to empathize with clients, but protect them from buying high and selling low. Today he was proven right.

“On behalf of all financial advisors, I’d like to take this opportunity to gloat with clients that stuck it out in the face of those who have been smugly insisting that active managers can’t beat the index,” says Young.

FundMonitor downgraded a slew of Nortel-heavy funds this summer, and today Young says it is starting to view those funds more favourably.