Gorilla and King Portfolio Candidates Message Board

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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Stock Farmer who wrote (53753)	3/23/2003 4:54:19 PM
From: Jurgis Bekepuris	Read Replies (2) of 54805

John, >Seems to me that price is the single determinant of a good investment. In the world with absolute foreknowledge, you are right. In the real world, you are not. You don't know for sure whether Gorilla is valued "at $0.98/long-term dollar" and Gorilla Shadowed company is valued at "$0.50/long-term dollar". And there may be quite high risk that you are wrong in the downside direction of the second company, because it may be dead much faster than you predict. Of course, you may be ultra-conservative, you could understand the Gorilla Shadowed company very well, and you may win buying it instead of Gorilla. I give you that. I just don't see myself capable of this game. That's why I have some rules to avoid the "traps". As I said before, for me price is not the "single determinant of a good investment". There's at least two non-quantitative determinants that come way before the price: - Circle of competence (see Buffett for explanations). I simply don't buy stocks of companies that I don't understand. And I hope that I understand the ones I buy at least a bit. - Management integrity. I try to avoid all questionable management. It's a tough job, since I don't know any of the management personally. These are there to avoid traps. And I don't see a problem of having other non-quantitative criteria in my investment process. E.g., I don't buy companies in the shadow of Gorillas. I try to buy companies with high ROE and sustainable high margins, which in the best case are G&Ks. Is my invesment approach limiting? Perhaps. There were times when there were almost no companies to invest in according to my criteria. But the same would happen even if price was the only criterion. So I don't feel limited. Jurgis

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