Thanks Mike. The Bear Book. That sounds right up my alley now. I'll see if I can find it on Amazon.
I had an interesting conversation with a relative at my wedding. This guy always asks me for advice, but I should be asking him. He had 1/3 of his portfolio in Lucent since the spin-off and hasn't sold a share. Also bought Intel at the '96 low and held (a triple, despite the last year's performance) and has a huge gain in Compaq.
He asked me what are you buying. And I said nothing. He looked at me like "you can't be serious", and then I got him scared by telling him I am on a gradual buy deliberate "sell everything thats not nailed down" strategy. The the question I always get:
"Ah, you're expecting a correction" (meaning 10% down, then buy it back for larger gains). And I said no, I'm not. That really confused him. So I told him a little bit about what the market looked like in 1968-70, and what it looked like in 1974.
I did not advise him to sell. He has huge taxable gains and you have to have the conviction yourself. You don't do something like that based on "tips" and I would not want him to because I could be very wrong. All I wanted to do was shake him up a little and make him think.
And as for this "throw out the old rules of valuation" stuff. The only rule I have is Ben Graham. An asset cannot trade indefinitely for more than its worth. To decide what something is worth, you certainly need to go far beyond multiples. I know a lot of ways to value companies, from the most conservative to the most generous. What I refuse to do is value companies based on "relative multiples" - i.e. since Citibank trades at 4 times book value so should Chase. But after doing my valuation on a business, I just go back to that simple rule. For two years now I have found undervalued businesses in an overvalued market. I still can, though its difficult. But if the market breaks down, those will collapse too. Don't kid yourself that your stocks will be safe. Go back and look at some charts of the early 70s. Nothing survived. |
