Bruce, but this is NOT a game..it's real MONEY!! On the contrary, the share prices ARE THE ULITIMATE INDICATOR OF WHO'S WINNING OR LOSING. Not volume, or growth "potential" or market share, or Gorilla status......the MARKET PRICE is the SCORE CARD, period.
It's real money? No kidding. FredE, I'm well aware that it is real money. I've got plenty of real money in the 'games' and have been investing for two decades. You may say the 'market price is the score card, period', but my view says it's the compounded returns that are the score card - PERIOD. That's the way I've played the game for the past two decades and most likely will be the way I play the game for the next two decades. Share prices might indicate who's winning at various times, but over the years I've seen the market be incorrect about that. A recent example would have been Ancor and Brocade where Ancor was priced as if it was winning. That's not who was winning though. If we look at another royalty game such as the box makers in the mid 90's, the market didn't always price it right in shorter term time frames.
I won't argue with you about the uniqueness of the past 12 - 14 months that we have been through - or even the unique boomerang out of the capitulation in the autumn of 1998. It was a once in a lifetime opportunity from the end of 1998 to the beginning of 2000 which many of us took advantage of in our portfolio management.
Okay, Fred. Let's take a few examples using some time frames and Friday's closing prices to get an angle on LTB&H money management even if it simply meant holding through this year's decline. You can call it stupid, illogical or illusive, but it is what it is. Some practice it and others don't. To each is own and there's little point in arguing about trading vs. longer term investing. I don't mean buy and hold till you die. I have no investments in my portfolio that I've held longer than 11 years. Some were purchased this year or last year for the very first time. I'm a big believer in long term investment, but I also choose new places to park some of my money based on a variety of criteria. I even tossed in one of your all time favorites to the following mix - Broadcom. I was fortunate to be an early investor in Broadcom and it remains in my portfolio for the longer haul along with a few other semiconductor plays in the IC/Communications space. You'll understand why in about ten years when you look back in retrospect.
Ten stocks known to gorilla/royalty gamers and their returns over the past 60 months:
siliconinvestor.com
siliconinvestor.com
Average return for the group of 10 is 2,783% for the 60 months holding through the decline to date. Not a bad compounding to date.
Let's take the Silverbacks out to 100 months since that's all the SI charts will allow these days for maximum duration:
siliconinvestor.com
Average return for the group of 5 is 5,942% for the 100 months holding through the decline to date. Not a bad compounding to date.
If we tossed in Dell and AOL to that group for 100 months, we'd have another 4008% return for Dell and 32,565% for AOL. We could have sunk $10K into Cree in February of 1993 on the IPO day at the closing price of $9.75 a share for 1025 shares. That would be 8200 shares today worth about $292K holding through the decline thus far this year. How's that for a company with still a small market cap?
In my version of money management via compounding and long term investing, I can live with all of those numbers above despite the returns being lower at this point in time since the prices have all fallen a considerable amount this year.
How about a 100 month return on some well known and widely held stocks like Citigroup, Merck, Pfizer, General Electric, General Motors, Coke and Phillip Morris? I don't want to overlook the dividends, but for the sake of the share price appreciation I will overlook them in this exercise.
siliconinvestor.com
I've got plenty of the investments listed above and others not listed which I have tucked away for a number of years while the effects of compounding go to work. I'm not saying trading and timing cannot work for those skilled enough to bat better than a 70% average. I also know what the power of compounding returns can do for the long term investor who has a well balanced portfolio. I firmly believe in a portfolio that is well balanced with asset classes of cash, bonds, REITs and equities.
We are already way off topic for this board and I offer my apologies to those of you reading this if you've made it this far. However, FredE asked me so I'm responding.
You wrote:
[Rule 7, p 188
"Once it becomes clear to you that a company will never become a gorilla, sell it's stock"
IMO, TFM has a MAJOR FLAW, the lack of any money management even in it's simplest form. The Rule above I think is a Flaming JOKE,,, TFM only tells you to sell after the companies techno lead has fallen out of the ranks or given way to another player????? WTF!!!!...but guess what, by the time you realize that, the stock has already crumbled badly in most cases. I'm willing to bet that in the next revision they'll put something new in to "try" and fix this flaw. ]
That would be in reference to the basket strategy where you buy a 'basket' of the leading contenders in a respective space. Once it is clear that in the hypergrowth phase that a leader emerges from the basket, you sell the shares of the others and consolidate that money into buying more shares of the leader. As an example, if you were playing the front office game in CRM software, you would have been holding Siebel, Vantive and Clarify (maybe Remedy as well). Once it was clear Siebel was emerging as the winner, you sold Vantive and Clarify to purchase more shares of Siebel. Even if you had waited until both Vantive and Clarify were acquired by PeopleSoft and Nortel, the hypergrowth phase of the CRM technology adoption life cycle would have been beneficial to investors holding the entire basket. It was a real time game with real money we followed on the G&K thread here and at The Motley Fool. If you would like to research the results, you can easily find the quarterly front office game reports written by Mike Buckley on the G&K thread. You'll find that it was not a 'flaming joke' and money was not left on the table. Share in each were held and consolidation took place in 1999. Returns hardly suffered by holding all three until consolidation took place. The market is getting better and better and identifying who the dominant player or leader in a niche space is. That's why we have seen IPO's in the past couple of years in technology with such a strong following and immediate boost in market cap to these players. What that means is that the returns are not going to be as many baggers for those companies that come out of the gate with $5 B market caps as if we were able to get shares such as a Cisco when it was only $300 Million market cap. Yet the premise for long term performance remains compelling and is less risk averse than owning shares of second and third tier players that don't become the dominant player in their niche.
Regardless, you can feel free to label the strategy a major flaw or a joke. Truth is, most investors don't have the patience to research a basket and invest their money in it while it plays out. They get too caught up in the short term and abandon the strategy before it is carried out. Would you have been willing to invest in and follow Siebel, Vantive and Clarify in 1996, 1997, 1998 and consolidate in 1999 to be left holding only shares of the gorilla in CRM - Siebel Systems? That's four years. Do you have any investments you've held in your portfolio for at least 4 years?
That's only one example and there are many more I could illustrate, but this is not the proper board.
Happy Holidays to all.
BB |
