Gorilla and King Portfolio Candidates Message Board

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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: TigerPaw who wrote (54589)	11/3/2003 8:10:52 PM
From: Stock Farmer	Read Replies (1) of 54805

The Gorilla game suggests that an investor can out research the other investors and so find the gorilla earlier. How? By applying a set of externally observable criteria also simultaneously available to all of those other investors? That's the appeal to ego flaw in the strategy. All we have to do to win is be smarter than the average. Since 80% of people believe they are smarter than average, the majority believe they are following a winning strategy. But a large fraction of this "majority" are wrong. And so they end up bidding up the price of the market (by misidentification of Gorillas), which props up the price of this junk merely by the law of supply and demand. But legitimate Gorillas should bear a price premium above the general (now inflated) market, and if we buy Gorillas without regards to price we will inflate them above the inflated mean... and so on. Positive feedback. I agree with you that one can find a Gorilla. But one must ask whether this is sufficient in and of itself. @Home was a Gorilla, wasn't it? Gemstar? Citrix? The problem with the "buy Gorillas they are under-priced" is twofold. First, it pre-supposes that the market under-values the Gorilla. Which if we think about it for long enough contains the seeds of its own undoing. How many people buying and selling Intel are NOT aware that it is a Gorilla? So how come only the folks buying are the ones clued into the fact that it's under-priced? The second fact in the line of reasoning is that profit is the product of price and price appreciation. And price appreciation is itself a product of price and business results and market perception. Merely looking at business results and back-extrapolating to profit is a very dangerous game. Qualcomm's business has grown substantially since its price was $200 a share, hasn't it? I do agree with this however: The ability to win in any facet of the stock market is to have knowledge about a stock, industry, or event that is not already known and priced in by the public at large. Although I would broaden it to include "or to have placed one's bets on the side that turns out later to be a winner". Much like the ability to win at poker is to have knowledge about the cards that is not accounted for in the payout odds and bet accordingly, or to merely have participated in the luck of the draw.

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