Those are some well thought out comments, Lurqer. There is plenty of historical evidence of the long term trend being up. Yet, we might be entering a period that is difficult at best. As you mention, there will be well chosen stocks that will buck the trend and be up in such a period. That leads us to gorilla gaming once again and the attraction of longer term investing within the criteria. The process never was a 'all boats lift with the tide' strategy.
One of the benefits, if we can call it that, is that part of the nature of a 'stock pickers' market following a wave of growth that lifted all tides is that the 'winners' will win much more than all the 'non winners' will lose together. One of the attractive elements in high technology is that the criteria we assign to picking those that have the technology 'fixes' to a 'broken' problems will begin to show their true colors and be those on the 'stock pickers' list moving through this period of the economic cycle where not all boats are lifted with the tide.
That's not to say that P/E's and multiples will not contract for those 'winners' or 'leaders' even more than they already have in this recent period, but it is to say that once that is over, they will outperform during an extended period of years when perhaps the overall market is sitting idle. Much discussion has been directed at this topic in recent months and investment houses are even talking the talk. Out of such a period will grow the 'new' dominant companies - and there will be some, believe me. It is a time where consolidation from the basket into the emerging winners is most appropriate as all the signs point to who is winning and who is losing. This evidence has been appearing over the last several quarters and will continue to appear moving forward. If anything, it almost makes gorilla gaming 'easier' because it becomes clearer who has earned the staying power and standards in their niche segments while we watch the screws applied to the losers in each niche. We will see this in the dot.com world as well where the survivors 'survive' and win more than all of the losers combined.
That means we, as investors and gorilla game stock pickers, have to be even more prudent and strict in our focus on the few, rather than the many. Whether it be in the mature tier of confirmed gorillas or the younger age, emerging companies within specific niches. Those companies are out there and stock pickers should be focused on them - even as the carnage unfolds. Why? A few of them will grow into very, very large cap companies throughout this coming decade. Will it be Siebel, BEA Systems, Checkpoint Software, Ciena, Juniper, Brocade, Qualcomm, JDS Uniphase, i2, Ariba, AOL, Network Appliance, Redback, Rambus, Veritas or other young start ups that we are not fully aware of at this point in time? What will happen to the more mature gorillas, kings and dominate players like Intel, Microsoft, Cisco, EMC, Oracle, Nortel, Sun Microsystems, Dell, Applied Materials, IBM, etc... ?
As the best companies grow earnings through their 'winnings' going forward, eventually a 'stock pickers' market will be attracted to those doing so and draw interest to them. As we work through the obvious slower growth news and earnings warnings/guidance because of it for the first few quarters of this year, it certainly is frustrating. However, it could also be viewed as an opportunity to apply the criteria of high technology stock picking so that one is positioned for a longer term investment horizon once the outlook begins to improve for the best positioned companies with the winning technology. That time will come with patience. It seems that everyone has opinions about timing, valuations and strategy at the moment. We will only know in retrospect what happened. That's not a comforting thought in the heat of battle, but the nature of investing - no matter what strategy - involves risk.
How is the original gorilla game 'test portfolio' doing since September of 1997 that the authors used as a model example in the original book?
siliconinvestor.com
That's without any consolidation. Time will tell if LTB&H in those companies back in 1997 over the years until proven substitution continues to be a valid strategy.
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