My own reaction to your claim of your gains since April 99 was primarily to think that it really doesn't tell us what your approach will do long term
I agree with you. I would consider the odds very low and not something worth chancing. That's why I have stepped back to reassess strategies.
Maybe you're a one-stock guy and have a 100-bagger in DELL or a 50-bagger in CSCO. But going forward, all that matters is, what are the risk/reward prospects for that approach, and can you find a better approach?
Let's look at that word approach. Most fundamentalist "approaches" (GG does seem to fall in this category) are designed to help you find good stocks. I believe at least some editions of GG mention Cisco on the dust-jacket flap and give hints about finding the "next Cisco". This notion of finding is quite common in investor psychology. Now in the case of a company that will consistently deliver you outsize returns, like the four horsemen of INTC, DELL, CSCO, and MSFT through much of the 90s, it is great just to find the stock and get on the bus (sorry, UF, if I am somewhat repetitive of earlier posts here).
But what happened in the past few years is that the new horsemen started to explode, going up ten times or more. That means they can explode to the downside (and will). I think many people on these boards have learned of that experience. After all, if you bought QCOM at a split-adjusted 100 last December (Nov?), you would have had a momentary double as it crossed the opening gates of 2000 at post-split 200. But then it went down to 51 and change, meaning you would be down almost 50%. Even as QCOM has bounced back significantly from that level, you would still be down about 25%. So my point is, I don't care how you categorize a company, if you have a double in it and you end up holding it all the way down so you that you're losing money, you really need to rethink your strategy.
As for the Cisco numbers, if you think there are interesting issues revealed in those measures you cited, please present them
I did some of this presenting on the Cisco thread. I mention it here because people have posted a couple things about the accelerating revenue growth rate trend. My point would be that if you just look at those numbers without looking at anything else, you are not getting a very clear picture of the story. On the most basic level, for example, you would need to divide the rev-growth rate by the increase in share count. Share count increased over 8% in the past year, so logically, you would need to divide the growth rate by 1.08 to see what the growth is on a comparable basis. That is just one nitpicking little thing, of course. But a lot of nits can lead to a different picture. For example, you can look at their declining margins. It's great to have more revenues, but what if earnings don't keep up? Not good, so how to keep up earnings? Well, perhaps you dip into the honey pot of "Other Income", i.e., investment income. And perhaps you want to add a little spice to investment income so you change the weighting of equities (pre-public investments, for example) to conservative bonds. Maybe these things help you in a bull market, but they are not really operating earnings. And do we invest in a company for its operations, or because we think their CEO is the next Peter Lynch?
Here are a couple posts from the CSCO thread:
Cash-flow composition
Message 14642739
Operating cycle
Message 14642549 |
