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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Juliet who wrote (20295)3/16/2000 1:14:00 AM
From: Seeker of Truth  Read Replies (1) of 54805
 
The WSJ article gives part of reality but not all. The fact is that for many years IBM was a wonderful investment at 50 times earnings. It cranked out 20-25% annual increases in earnings like a clock. Polaroid was a great investment for more than a decade. About 1960, XEROX at 100 times earnings was one of the most fantastic investments that I was ever involved in. I recommended it strongly to my mother who made a bundle. It was great for about a decade. All of these three finally slowed their growth. By the time their growth slowed they had become a religion and many people clung to them too tightly. Today's growth rates are very high and worth big P/E ratios. How big, who knows. One thing is certain though, the declines will be horrific when there is company specific bad news. As long as the news is great, I think that in a zig zag way there will be good gains. Let's look for example at NTAP. It will probably quadruple its earnings over the next two years. Is that worth 350 times earnings? It depends on the period after these next two years. 40-60% for a few years could make the stock seem cheap now even at this normally outrageous price. If EMC or somebody else starts cutting into their market share in filers then people will jump ship fast. In other words we are dealing with high risk and high reward. Some companies will persist in their growth. Look at CISCO. The global internet has only begun. I think we have to own a diversified bunch of gorillas so if the game, or comparative advantage period, is ending for one of them we won't be hurt so catastrophically if we jump a little late.
Finally please note that we have entered an era in which engineering/scientific talent is in short supply. The rapidly growing companies naturally attract more than their share of the talent. This tends to lengthen their fast growth period.
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