A few years back it seems like an eternity today the U.S. stock market experienced a severe bubble burst. Legitimate stocks rose beyond reasonable valuations and ideas merely in the germination stage sold for prices far beyond those of real proven companies. When the bubble burst, billions of dollars of shareholder value evaporated. One would have thought wed learned our lesson.

Today, Yahoo and EBay, the two leading internet companies, again sell for prices beyond reasonable value. Again, people seem content to listen to a good story and place unrealistic valuations on companies that have no earnings or real prospects. Googles recent IPO is proof positive that the market is still bubble-icious. Even stocks like General Electric are selling at prices above what the market should bear. Whats the story?

The story is, very simply, that we dont learn lessons very well. Also, if you think about it, a lot of people actually made money back in the late 90s during the bubble. So, theres a case to be made for gambling on another similar adventure. If we can survive the greater fool theory, and find someone willing to pay more than we are, it almost doesnt seem dangerous to buy a stock that has little or no intrinsic value, as long as theres a belief that someone else might eventually pay more. So much for value investing!

No, the experts are now convinced that stocks and markets do not move in line with actual events, but instead move along with emotions and trends. Thus, the big money is chasing itself, going where it goes simply because it is going there. Does that make sense to you? I hope not.

Weve held firmly to the seemingly outdated position that value does matter. We differ from some value investors, such as Warren Buffett, who avoids technology and new ideas: we do believe such stocks can have merit. We also hold firm to the idea that stocks will eventually return to their real valueor at least move toward that point in the end.

In these days when emotion seems to dominate reason, it is not unlikely for the whipsaw effect to be stronger than the reality effect. But we believe that, even in the midst of such insanity, having a focus on reality is worth somethingeven if no one else believes it.

For questions or comments, Scott Pearson can be reached directly at Scott@valueview.net or by visiting www.valueview.net