Semi-Equips - Buy when BLOOD is running in the streets! Message Board

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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!

LRCX 158.18

+2.2%

3:59 PM EST

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To: Jerome who wrote (2271)	6/14/1997 10:18:00 PM
From: jeffbas	of 10921

I know of no simple formula or any less simple one. One approach is to pick some reasonably long time period, say 2-3 years. Then determine the expected percent gain from what you regard as the most likely positive outcome, and percent loss from the most likely unfavorable outcome. The ratio of the former % to the latter is the reward to risk ratio - which should normally be about 3 or more to be attractive. Note that this approach is really a simplistic substitute for determining all possible outcomes, assigning a probability to each, multiplying the two, and adding up the products - to get an "expected value" (mathematical term) for the stock over the time period specified. You want the stock with the highest expected value relative to the current price, with risk/quality characteristics you otherwise find acceptable. In my opinion, most people, including me, pay far too little attention to the possible outcomes other than their favorite one, and the probabilities of them happening (especially with respect to small cap stocks).

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