Larry, Larry, Larry... :0)
Your rant about our mistakes is true enough, probably, but not exactly news at this point.
Moreover, just repeating the word "valuation" is not a sufficient remedy for the problem, because of the difficulties in coming up with appropriate metrics for valuing fast-growing bleeding-edge tech stocks whose worth depends on a reasonably unpredictable future.
For example, you say "the good news is that most of my stocks are at fair value now." But how would you justify that claim? Traditional value investors would rarely if ever touch gorillas, and I don't think now is an exception to that rule. But once you abandon the purity of traditional metrics, it's something of a slippery slope down into the abyss--with the bottom being the infamous "price-to-vision ratio."
I say "something of" a slippery slope because certain individuals have devised their own rules of thumb for G&K (or fast-growing tech) valuations, and used them to exercise more discipline than the clowns (like yours truly). But there's hardly a consensus out there, so it's not sufficient to "tsk-tsk" everybody as if "fair value" were something staring people in the face, and only now to boot.
In fact, I'd say that valuation is only a subset of the larger issue, which is really investing discipline. The failure, if any, was in that area, and there are many approaches to discipline of which valuation is only one.
What are some of the others? you ask. Well, portfolio rebalancing--either not letting individual stocks or sectors take up too much of your portfolio, or not letting equities in general do so. One could have done great in reducing risk during the later stages of the bubble even without calculating valuations, simply by dutifully selling off bits of one's holdings as they ran up to, and over, predetermined limits.
Another strategy could have centered on monetary values: for every $X dollars your account rises, take $.1X (or whatever) off the table into cash. Combined with a reverse strategy for downturns, such a countercyclical approach would also have worked nicely over the past few years. This strategy could also be used with absolute values: "My next goal is $X, and when I hit it I'll take some cash off the table."
Another strategy would be to focus on market cycles or stock patterns, like BB is starting to advocate. And others would be dollar-cost-averaging, diversification, hedging with CC's, etc.
Anyway, my point is not to dis attempts at valuation, or defend the silly things some (like me!) did during the bubble. I just think that it's worth stepping back and taking a broader perspective, because it's really discipline that's the key issue, and valuation is only one path up the mountain.
tekboy/Ares@andarockypath,too,forthosewhocan'tcount.com |
