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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Uncle Frank who started this subject7/12/2000 2:57:47 AM
From: Seeker of Truth  Read Replies (1) of 54805
 
A frequently mentioned feature of the Gorilla Game strategy is to hold for the long term. There are two reasons for this. 1. Mike Buckley's point --- stocks can go up rapidly in a short period. If you decided that the stock was too high, well too bad for you. 2. Income tax. It's better to pay it after a long time than frequently. I did a calculation. Suppose you had a stock of a company the sales and profits of which were regularly increasing by 30%. It's more than a little artificial but let's take it as an example, a CISCO or Intel earlier on, etc. Further suppose the total tax rate from all jurisdictions is 40%. That's the case here in Canada and certain states in the U.S. also tax heavily I understand. If we hold for 10 years and then sell we will have multiplied our money by 8.67 times. On the other hand if we sold every two years and of course paid the capital gains tax every two years, we would in ten years multiply our capital by 5.65. That certainly sounds convincing. And yet, our thread has been talking about valuation questions. Suppose we think Gorilla A is over valued just now but Gorilla B is cheap. To make it specific, I think Gemstar will do much better than CSCO in the next year. If such a judgement if correct, and I can continue to see such big differences then switching the money around might increase the profit from 30% to 40/45%. Now it looks like being willing to sell and exchange for a more favorably priced gorilla is the way to go. It is a fact that only idiots think they can reliably predict the short term, for the market as a whole and for a single stock. Nothing is more revealing than the respect given the nonsensical "technical analysis." As Mr. Buckley says, again, by knowing that we can't predict the short term we have placed ourselves into the minority of investors. But while we cannot predict, can we not approximately gauge relative evaluation? I suggest that we all do an experiment, i.e. rank our gorillas according to our expectations for the next one or maybe 2 or 3 years. Then after the period expires we can look back and share some insight on the reliability of our comparative evaluation.
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