Bob Brinker: Market Savant & Radio Host Message Board

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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host

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To: mister topes who wrote (2470)	12/19/1997 1:06:00 AM
From: Kirk ©	of 42834

the fools believe Coca-Cola at forty times next year's estimated operating earnings is some kind of a great deal. Here is a company growing about 17% per annum trading at a forward year p/e multiple of 235% of the growth rate. And the fools say Coca-Cola is a great company so buy it... What is strange to me is my first reading of anything the fools wrote was their explaination of "the fool ratio" where they come right out and say to short a company that is trading with a p/e over 2 times the growth rate. Lets see, I think I still have it on my hard drive.... my url I had expired, but here is some of what I saved: <begin fool quote> FOOL RATIO __________ SAYS .50 or less __________Buy! .50 to 1.00 __________ Hold. 1.00 to 1.30 __________ Sell. 1.30 or more __________ Short! In plain English, these numbers say, "Tend to buy stocks when their P/E's are half their growth rates; tend to sell stocks when their P/E's equal their growth rates; tend to sell short stocks (cf. "Shorting Stocks," here in the Novice Area) when their P/E's exceed their growth rates by 30% or more." (We actually prefer to find our shorts among stocks with Fool Ratios of 1.70 or more. That makes us feel REALLY good about the investment.) The Fool Ratio is our favorite tool, and not just because we came up with it. We think it's darned useful, giving many investors a much-needed guide to the best prices to buy and sell stocks in which they're interested. The Ratio often imposes a trading discipline that is sorely lacking in many of us (the authors included). It can be terribly hard to ignore buying a favorite stock of yours whose Fool Ratio is .60. It can be terribly uplifting (and profitable) when, a week later, a short-term decline in this stock brings its Fool below .50. Pouncing, you snap up the stock more than 15% below what you WOULD have paid for it, increasing your profit potential that much more. <end fool quote> Hmmm....They explain it well, they just have trouble following it, especially with Coke with a fool ratio above 2! The fools write one thing and then preach something else. One thing I really like about "the Brink" is how he is consistent with his advice which gives you confidence is what he is saying. regards Kirk out

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