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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Seeker of Truth who wrote (11482)11/30/1999 9:28:00 AM
From: Mike Buckley  Read Replies (3) of 54805
 
Malcolm,

If I had the answers to your questions, I would take the assigned moniker of Merlin to be offensively understated. :)You are very clearly asking the right questions and I fear that some people, whether they are caught up in group think or not, are not.

1. It is no longer possible to say that certain gorillas are undervalued

I understand how you might have come by that interpretation but I hope I didn't write it quite that way. The real issue is that we don't have any quantitative way to determine if a gorilla is undervalued, fairly valued or over valued. Though the market has tended to undervalue gorillas by a wide margin in the past, markets are dynamic enough that I don't take that to mean that it will always happen in the present or the future.

Add to that concern that even gorillas eventually hit the brick wall so clearly depicted in the manual. Not ahving the skills of LindyBill, it's not always easy for the carpetologists of the world to see it coming.

My point, and I think yours too, is that prudence is always appropriate and that no investment method should be followed with eyes closed.

the manual gives no clue as to how to do a quantitative estimate of value.

Yep.

if stock X really is a gorilla then the question may be, will the profits multiply by 10 or by 100 in the next five years?

Another question might be if the profits multiply by 3, is there a gorilla out there whose profits have a better shot of multiplying by 10.

there MUST BE some price over which it would be madness to buy. 300*earnings or 30*sales,using the trailing values?

There are some potential gorillas out there selling at a price of about 800 to 1500 times sales. Maybe that should be the limit. :)

Heck if I know. I think the better way to determine value is probably to compare various gorillas. Look at all their obstacles and opportunities. Look at the valuations in that context. Pick the best two or three that in your opinion have the most upside potential and remain abreast of the changing fundamentals.

Any other ideas?

--Mike Buckley
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