Multiple compression -- when investors pay less for each dollar of earnings or revenues than they did before -- is supposed to make for buying opportunities. However, a timely report from the software-stock research team at regional brokerage

Dain Rauscher Wessels

shows that the opportunity hasn't quite arrived yet. In short, while written as a hopeful document about when to buy software stocks, the Dain Rauscher report shows that software stocks in general remain more highly valued than they were in late 1998, the last time a global economic downturn choked demand for information-technology products.

"We see few opportunities for owning good software companies solely for reasons of low valuation," writes analyst Tonia Lee, who had the good sense to take the week off for vacation and wasn't around to elaborate on her report. The reason: As much as valuations have declined, they're still high historically. And if we've learned nothing else in the last year, it's that stocks eventually will revert to their historical valuations, either when times get tough or when they disappoint Wall Street.

Some examples: Three "digital infrastructure" software companies --

Adobe

(ADBE) - Get Report

,

Macrovision

(MVSN)

and

Verity

(VRTY)

-- traded for an average of about six times trailing four quarters of revenues in the fourth quarter of 1998, when the Asian flu hit stocks hard. That forward multiple rose to 23 times in 2000. Today they stand at 12 times trailing sales. In other words, these stocks are worth roughly twice what they were worth in the last trough, a time when economic problems were isolated in Asia and when the U.S. economy still was booming.

The picture also is stark for "e-business applications" software companies

E.piphany

(EPNY)

,

Siebel Systems

(SEBL)

and

PeopleSoft

(PSFT)

. The average price-to-sales multiple of the latter two, which were public in late 1998, was five times. Today the three trade for an average of 11 times trailing sales.

"The low valuations of

the second half of 1998 represent a potential floor for companies that have missed expectations and paint potential downside risks for companies that currently have loftier valuations but have yet to miss expectations," writes Lee.

That downside risk is clear, however, even for companies Lee likes. She sees shares of Adobe, worth $45.30 at Tuesday's close, trading in the $30-$40 range were the company's valuation to revert to its late-1998 levels. This despite calling Adobe (not a Dain Rauscher banking client) "the most attractive risk-reward scenario and buying opportunity" at those lower levels.

This is simple math. Simplicity could keep investors from making costly mistakes.

Disclose This

James J. Cramer

, among many other things, is the man who nearly always frames the debate, not just at

TheStreet.com

and

RealMoney.com

, but often for all of Wall Street. In fact, when he's engaged in a debate, it's almost impossible for a thinking person not to have an opinion. Twice this week the former trader has weighed in on similar topics,

Regulation FD

(for "fair disclosure") and the

NASD's

trial balloons to require more disclosure by analysts and television commentators about their holdings. In my humble opinion, he's so wrong on FD and so right on the disclosure policies.

Cramer's

agitated over FD because he thinks it's causing companies either to clam up or to report meaningless information, causing ill-informed investors to panic. A good example of the latter was

3M's

(MMM) - Get Report

disclosure that currency adjustments would ding earnings this quarter. That's not a particularly worrisome development to the informed investor, but 3M's stock nevertheless declined and then revived on the news.

As noted earlier in the Columnist Conversation, I think Cramer's way off base here. Investors -- the kind who buy stocks rather than rent them -- are completely uninterested in short-term movements caused by traders who misinterpret information. If 3M's stock falls because some ninnies don't understand currency implications and then rises again once the coast is clear, investors who think 3M is grand and who held throughout never should have been bothered. Bottom line: FD forces companies to disclose information to everyone simultaneously. If a currency adjustment isn't all that important, the company is free to give its interpretation to anyone it likes -- so long as it discloses the news uniformly. Please, Jim, let's not go back to the bad old days of selective guidance to the well-connected.

On the other hand (the son of an economist gets a lifetime pass to use that expression), Cramer is dead-on with his

contrarian take on what analysts should disclose. To wit, investors unaware of routine conflicts of interest are naive. That's not to say these analysts are paragons of virtue; they're not. But as Cramer says so well, if they make bad calls, that's most likely because they're not good stock pickers, not simply because they're conflicted.

Why are we arguing about these things now? For two reasons. First, the stock-market bubble popped. During the bubble, only whiners like journalists at

TheStreet.com

cared about such topics; now everyone does. Second, only individual investors -- many of whom were goaded into investing by the various quacks and shills who profited from their participation -- are surprised by the conflicts on Wall Street.

Henry Blodget

of

Merrill Lynch

is conflicted? Wall Street was so shocked, shocked to learn of his conflicts, that it named him No. 1 Internet analyst in

Institutional Investor

magazine's annual beauty contest.

Disclosure is a good thing. Period. Forcing companies to disclose more, and more fairly, will make the capital markets better. Forcing analysts to disclose more won't make them any better at picking stocks.

In keeping with TSC's editorial policy, Adam Lashinsky doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, frequently guest hosts the TechTV cable television news show Silicon Spin, and is a regular commentator on public radio's Marketplace program. He welcomes your feedback and invites you to send it to

Adam Lashinsky.