UF,
Before I respond to your query, a little personal background. and some kudos. This may be OT for most of the thread, so be warned. I have been an active investor since 1973 and an active high tech investor since 1994. Though I have not been a Gorilla Gamer, I have followed this thread, among others. Many thanks to all of your for your intellectual capital so willingly expended to help others.
UF wrote:
<In each case, I'm sure there were teams of accountants, technologists, and lawyers evaluating the acquisition's balance sheet, cash flow, ip, etc., but the results were disastrous. Why did these team of pros miss, and could we do better as diligent individual investors? >
My comment is that in high technology there is not enough stability of the structure generating revenues and expenses to accurately forecast earnings and growth rates. Perhaps this is in part what Buffet means when he says he does not invest in technology because he "does not understand it." And I have doubts that we as diligent individual investors can do any better, but we must try.
For any of you that have not read and reread Buffet's piece in Fortune entitled "Mr. Buffet and the Stock Market," (Vol 140, No 10, November 22, 1999; I could not find the link), it is a must. A few of the important points from that article follow.
Why the crash? Over the 1982 -1999 period stock valuations grossly outran the underlying profits supporting them. After all, investors in the aggregate can only take from the market over a period of time the profits less transactions costs. Profits grew at an annual compound rate of roughly 6% while stock valuations grew at a compound rate of about 19%. Given the oversized gains, a crowd was attracted into the game that was responding not to interest rates and profits, but simply that it seems a mistake to be out of stocks.
Why the poor forecasts? "Investors" projected into the future what they were seeing in the present. The present was clearly unsustainable.
What follows below is a slightly edited version of a PM to UF on another matter. Were I to rewrite it, I probably would tone it down a little, but it essentially conveys my thoughts on GG so I will let it stand.
>Thanks for the invitation. I'm not sure, though, I belong on the thread. One reason is a lack of knowledge; the other is my belief that valuation is always important. And valuation has been, until recently, pretty much passe on the thread.
The tunnel vision which excluded valuation followed from treating The Manual as a bible and the consequent unwillingness to challenge any aspect of it. Yes, Moore's work was also the strength, but the Manual was, and is, incomplete.
Moore sidestepped the valuation issue with the assertion that Gorillas are always undervalued and thus was able to avoid discussing the (valuation) issues that have consumed 80% (WAG) of the intellectual effort in the investment literature from Graham to Buffet. A brilliant move by Moore from the perspective of writing a book, but not very realistic from an investing perspective. (I am not questioning his belief in the truth of what he wrote.) Moore must, I think, now confront the valuation-of-Gorillas issue. I look forward to his ideas for he has the best grasp of marketing technology products that I have read and he is truly a gifted writer. And hopefully he has a lot to say on valuation.
GG faces (in my view) two equally (emphasis on equally) important issues; identifying the gorilla and assessing its "intrinsic" value relative to its market value. Both very tough issues, the latter made next to impossible because of the paucity of good accounting information on earnings and free cash flow for these early stage (often) companies. Even a later stage company such as Cisco is hard for me to value. And picking a Gorilla, well that is just as difficult a task. Even Moore's record does not appear that good.
As you can see from the above, the complexity of it all overwhelms me. That is why I read the GG thread- and many others- trying to separate the useful from the trash.
Lest you think I have fared better in my investments than have Gorilla Gamers, I have not. The "market giveth and the market taketh away." And, I think the jury is out on whether any approach to investing can give superior returns over the long term. The chase is a game unto itself, admittedly a much more fun-filled game in 1999-2000 than in 2001. >
My present mood is much more one of reflection than "gaming." I am developing an internal set of lessons I hope to learn (this time) from high tech investing, and criteria for committing my reserves to technology stocks.
Back to lurking.
Gayle Riggs |
