I'm not sure whether we are agreeing or disagreeing at this point :)
That is probably a good thing!
A company may go through the entire Gorilla cycle, thereafter to languish for a while. Should we continue to hold when they cease to exhibit GG characteristics, in the hopes that a second tornado materializes?
Clearly, one doesn't hang on to an ex-gorilla as a part of the gorilla game.
I'm not sure what this has to do with the issue I thought we were discussing though since "the entire Gorilla cycle" is by definition a long time hold.
So I don't see anything fundamentally wrong with buying and selling and buying and selling again. For legitimate reasons.
Me either ... the question is in what constitutes "legitimate". Having a one time gorilla be displaced by newer technology is clearly legitimate, but almost certainly long term. The issue which I thought we were discussing was going in and out of a gorilla based on closing valuation thresholds, not any change in the gorillaness of the company.
And if you mean that profit is subordinate to holding time in an investment hierarchy of principles... well then we disagree strenuously. Because I see the latter as only one of several theoretical means to maximize the former.
One could hardly subordinate profit to time sensibly ... no matter how much some of our current portfolios make it appear that we have done so ... but that was not what I was trying to say about holding time.
This is one of those points where I wish I could add a graphical element since I think it would make things much easier to communicate. But, words will have to suffice (or not, I suppose!).
Think of a chart of the stock price of some gorilla over a long period of time. This is a little hard to do lately since the bubble and bust tend to swamp out what came before, but imagine it pre-bubble for the moment. In that history, there are likely to be other upswings and downswings which look quite dramatic if you focus on only a short period, say 50% or more variations. But, as you extend the time frame, these up and down movements are minimized in relationship to the long term secular change. E.g., suppose at one time the stock is 10 and then it drops to 5, but then some years later and several surges and dips later it is a 100. In that kind of context, what I am trying to say is that how well one might have managed to time the buy to make it at 5 versus having made the "horrible mistake" of buying at the peak of 10, really doesn't matter a lot when the stock has later risen to 100, especially since one is unlikely to have hit exactly on the lowest low or highest local high.
As noted, the recent hyperbubble and subsequent bust tend to cloud this image because the movement was so extreme. It is the very extremity of this movement that I think has so many of us second-guessing since it seems like anything that dramatic we should have been able to notice and act on and because the impact on our holdings is so dramatic.
But, in asking the question of what to do going forward we have to ask ourselves, "how likely is it that this kind of dramatic bubble and bust will happen again?". If it is an anomaly, then we need to have a strategy which will work in more ordinary times when the movement won't be that dramatic.
To be sure, those folks who bought at the top of this peak may well have a long time to wait until the difference between peak and valley no longer seems so significant, a very long time, perhaps. Maybe even long enough that it never happens. But, that is an anomaly, not the longer term historical pattern.
It is confusing because you dismiss the importance of "timing" the purchase point, only to make reference to time as a criteria for purchasing?? "... as long as that time was four or five years ago..." Which is timing. Isn't it?
No, it is the difference between timing and the passage of time.
It's not appropriate to say "as long as you bought more than xx years ago you would have done well". As if to imply that if you buy at any time that as long as you hold for four years you will do well. Picking the right time to buy is irrelevant. IMHO. Picking the right time to sell is irrelevant too. Neither have anything to do with time.
So to your question: "does it matter a lot exactly when it was that one bought". The answer is "no, of course not". What does matter is the price at which one bought, relative to the price at which one sells. In fact, that's the only thing that matters.
My remarks are strictly in the context of the gorilla game, and I am not sure if, in the above remarks, you are referring to that same context. Obviously, I think, it matters a great deal *what* one bought as well as when and at what price. Without the what, then we are in the same context. If one buys a non-gorilla, then different forces are at work and it could well be the same price after five years or less or nothing. In that case different issues apply. If it is a gorilla, well sure, in the end, it is still sale price minus purchase price from which one gets the profit, but our belief is that, given enough time for forces to work, the former will be comfortably above the later whether or not we are clever about buying on the dips and selling on the highs.
Note, I have not the slightest dispute with the idea that *if* I had a good method of valuation that I believed in, clearly one could make better buying and selling decisions. I would love one. I'm just not comfortable about having found one yet.
Apropos of which, as a companion challenge to my request that someone take some specific stock histories and show us what a specific buy/sell rule would have meant relative to a simple LTB&H, here's one for the advocates of particular valuation methods, at least those that relate to projecting a company's future like FCF. Take a couple of the stocks that interest us today, back up five years, using only the information available then, makes your projection, preferably with the mid, high, low bands. Then compare the projection to what actually happened and tell us how well they compared. To be fair, one should probably update the assessment once a year or so during that five years so that we see whether the model was self-correcting. |
