buy prices for EMC:
I've read the Gorilla Game, and also most of Buffett's yearly reports to stockholders, and thereby conclude that:
1. there is a difference between a good stock and a good company, and good investment returns come when you can get both.
2. the Gorilla Game is the best method I've found, to pick companies
3. Buffett has the best method I've found, to pick stocks.
Specifically, I amend the Gorilla Game's core statement on valuation, to read: Almost all the time, the market overvalues the stocks of Gorillas and Kings. The only time an investor can buy these stocks with any MarginOfSafety, is during the rare, brief periods when the market and the sector is out of favor. Buying during episodes of panic selling is the only safe time to buy G&Ks. At all other times, the market is likely to see the same thing I see (great company, great earnings growth potential), and bid the stock up to unsustainable levels.
We saw one of those periods in October 1998, and the next one was October 2001. At the moment, the markets are retracing (50% so far) from the rebound off that 10/01 panic-selling event. This is an opportunity to "top-off" long positions in G&Ks.
For EMC, the P/S is now 4.7 = 15/(7.09/2.22). That's using revenue for the year ending 12/01, which includes 2 quarters that are likely to be trough industry conditions. For reference, the 1996 P/S range was 1.5-3.8. Can't use PE, as that ratio approaches infinity as the E approaches zero. So, I'd consider the valuation to be a bit high (still), but I also consider the 2001 low (10) to be THE low, a low I doubt we take out this year, and I'm prepared to buy all the way down to 10.
My plan: add EMC 2004 20 calls, beginning when EMC is at 15 (bought some today for $3.40), and buying in equal-$ increments every $1 further decline in the stock price. I'm already holding several hundred of these options, bought last year when the stock was between 16.3 and 10.9. Then, on the subsequent rebound, I will sell my higher-cost lots, again in increments, beginning when the stock hits 18. The plan is to end up with 300-500 contracts, bought when the stock is within a few dollars of its lows, and hold them. Maybe convert them to stock in January 2004 (if they are well in-the-money), or roll them over into 2005s when they become available (if the stock is still under 20).
My plans on adding to NTAP and QCOM are less certain. For the moment, I've got limit orders for QCOM at 35 and 30 (to add to the shares I have at 40). Just holding my NTAP, but thinking of starting to add soon. |
