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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: slacker711 who wrote (36805)	12/19/2000 12:52:51 PM
From: Mike Buckley	Read Replies (2) of 54805

Slacker, When you consider the amount of time and work which went into analyzing the FF....it is a cautionary tale to say the least. I think the bigger cautionary tale is that the Foolish Four (and all of the other Fool's "workshop" models) were born of a desire to outperform the market using investing methods requiring only minutes each year of the investor's time. As a result, no fundamental analysis of the selected companies is used as a basis for making the stock selections. I'm disappointed to learn that the fundamental reasons that I believed explained the past outperformance of the Foolish Four and other Beating-the-Dow strategies may not be valid. For the investors who would have relied on such a method in the past, I would encourage them to invest in an S&P 500 index fund. From the Fool piece: I also like the idea of balancing the high-growth stocks that the Workshop screens usually pick with some old economy stocks that actually generate steady and substantial profits. As much as I admire Ann Coleman who wrote that piece, I think that generalization she implies is very, very misleading and I see it all the time in the media. First, there is no new or old economy. The strategies of making money on the Internet are new but I don't believe the implications are nearly as drastic as when our economy changed from being agricultural-based to being manufacturing-based to being service-based. In fact, I think the Internet only makes the service-based economy more efficient. Second, the new and improved theme in the media is that "new-economy" stocks and growth stocks have no earnings. Those pundits would lop all the companies we follow generating huge amounts of free cash flow and earnings into those "new-economy" stocks which are suddenly out of favor. They're wrong to do so. I believe the media's misplaced emphasis on the "real" earnings of "old-economy" stocks is why investors are fleeing to "old-economy" stocks. Eventually the value will be seen in the growth stocks generating huge net profits and free cash flow. Time will tell whether the growth stocks will get so low that they also become traditional value plays, but eventually stock prices correlate to cash flow. --Mike Buckley

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