RE: PEG Ratios
Mike,
That was an excellent post. Thank you for your insight. I don't know if you achieved your goal of "convincing" Uncle Frank, but you caught my attention.
I've come to a similar conclusion. After (1) finding a great company with a great future, (2) analyzing and categorizing the company's competitive position via GG criteria, and (3) examining the company's financials, the PEG ratio can, I think, help determine some guideline on when to buy. In hindsight, this is where I could have done a better job in 2000. Buying on the dips made sense at the time, but it was all relative. Kinda like buying a $300,000 house for $600,000 instead of $800,000. Gee, what a deal.
For better or worse, I'm trying to be more mechanical for the future. I realize there is no algorithm to wealth, but I decided to use the following:
Buy = PEG is less than or equal to 1.2 (a 20% premium)
Hold = PEG is greater than 1.2 and less than or equal to
3.2
Trim = PEG is greater than 3.2
Liquidate = A negative change in fundamentals
It's not the panacea, I know. Valuation is part science and part art. But the exercise of trying to develop a guide before investing my hard-earned cash helps give me some perspective and discipline which I need. We'll see if it pays off in about 20 years.
Again, thanks for your insightful post. |
