Alan,
I am still in the process of forming an investment strategy. I am trying to sort our all the factors that go into making the right decisions and then setting up a strategy that I can live with, and most importantly, consistently make money over a period of time. The investment field has almost as many "strategies" as there are people who invest. A lot of people make money, so there are probably many "good' strategies. The most important thing, I think, is to find a strategy that makes money for you.
Many people advocate a long term "buy and hold" strategy. I believe that is a good strategy, but I am not so sure it is a good one for the semi-equips. When I started investing is this sector over 2 years ago, I was lulled into a false sense of security by the very high growth rates for this sector. I believed the numbers of 25 to 35 percent which most of the stocks in this sector carried. It was the major reason I invested in FSII in 1996 - the growth rate was projected at 35 percent per year. At the time, I didn't realize just quite how volatile this sector was over a period of time. As you know, FSII was at 38 in 1995 and today it is at 9 - it will take approximately a 325 percent gain to get back to its 1995 high. Will it do that in 1998 - no - will it do that in 1999 - maybe - lets say that it did - that would be four years a person had money tied up in FSII for zero growth. That's a long way from a 35 percent yearly growth rate. There is also the chance it may never get back to its 1995 high. Incidently, FSII was selling for 1 per share at the end of 1990. Today it is at 9 - rounding off the period for that gain at about 8 years, the compound yearly gain is about 30 percent - certainly nothing to sneeze at. It would have been much better to sell in 1995, however. Rounding the period off at 5 years and selling at 38 would have yielded a yearly growth rate of 107 percent - now we're talking!!! Both of these examples, however, represent the best case - the worst case is buying at 38 in 1995 and 3 years later being at 9 for a loss of 76 percent and a gain of 325 percent needed to break even.
To be fair, there are several stocks in the sector that have done very well. My favorite, out of the group of 41, is PLAB. It was the big loser of the group last week by losing 25 percent in five days, however, the long term performance has been excellent. PLAB has had some wild swings in price, but overall, it has kept on a steady upward climb (you might argue, except for the last couple of months). Again, let's do some approximation. It was selling for 2 in the fall of 1990 - then it hit approximately 35 a couple of months ago - over the 8 years that is a yearly growth rate of 43 percent - however, yesterday it closed at 18 and change - now the yearly growth rate is 31 percent. Isn't that a coincidence? FSII and PLAB have essentially equivalent growth rates of 30 and 31 percent respectively (using yesterday's closing prices) over the 8 years starting in the fall of 1990.
As I look over the group of 41 stocks, there are many that are not going to "make it" over the long haul. I have presented at least once, table(s) that show the high 1995 prices and the 1997 prices. Even though 1997 was a rip-roaring year, many stocks did not reach their 1995 highs. FSII was a good example.
What does all this mean? I am not sure, but I am beginning to think that if I am going to be successful in investing in the semi-equips, growth sentiment must be "accurately measured" (easier said than done). A person has to wait until the perception arrives that the stocks in the sector are going to grow - then you buy. At the first sign of trouble, a person sells. A good example is the "Asian crisis". Now the mood is darkly pessimistic. Who knows when it will end, but I think a person will be able to tell when the mood begins to soften - just keep your eyes on the group average as well.
One of the benefits of being in this sector is that it always helps to be a good stock picker, but it is not necessary to make money. All 41 stocks in the sector will go up when sentiment becomes favorable and all 41 stocks in the sector will go down when unfavorable (for people who like to short stocks, a shorter's dream). Some stocks just go up and down further than others, but they all run together. Persons with a few thousand bucks in September of last year who put all their money into buying "puts" could have done so at random in the 41 stocks (put the list up on the wall and throw darts at it) and be millionaires today.
The up and down cycles are quick - 4 to 6 months and then it is history. In between times, not much happens. So the way to do it is to buy at the first sign of optimism, sell at the first sign of pessimism, and in between times, put your money in Coca Cola.:)) |
