Dave, MadDog and I have gone up this ally so many times - on and off board. I'm not sure if he eventually agreed with or understood my philosophy, but we did have good time discussing. I'll give it another try with you. Some think this is Linda Goodman stuff. You may think so too, but you did ask.
Our investment styles are governed by our inherent personality types.
One one extreme we have the super rational, logical types looking at fundamentals and rejecting all else. Most investors of this kind are doctors, lawyers, engineers, computing & finance professionals - people who check details and fit the pieces together before they decide to invest - they are the doers of our society. Their detailed search leads them to define the company in todays terms, by todays rules. With objectives and target prices - the intermediate is important to them. They find comfort in conformity. They have low search costs and great analytical abilities honed by years of experience and deductive thinking. MadDog and yourself fall in that category. They are strong convincers and like to convince by using logic and rationality. Talking of convincing, I take the liberty of naming Guru - he has a universal white truth and he seeks conviction. Everything else is black.
The other class of investors are people who are instinctive. They see conceptual patterns where none are apparent. The end result is important, not the intermediate. Thus they are incapable of seeing the company as it stands today. They choose not to be logical. They assess the management, assess the industry and instinctively see a picture of tomorrow. I'd say these are business development people, marketing professionals - people with creative instincts - they are thinkers, not doers. They tend to minimise their search costs. They have a heightened sense of instinct, honed by years of instinctive decision making. These are sometimes people who lack the need, often the ability which remains undeveloped unless required professionally, to convince others - they are non comformists and the pleasure comes from conforming to their own beliefs. They accept the grey areas. In their extremes, they can be impractical, irrational.
The essential difference lies in the fact that the former set of investors confine themselves to the current and interpret/measure by existing rules/yardsticks. The latter go overboard and discount the current totally. If something does not fit, they create new measures/rules to fit their tomorrows. To rational beings they seem irrational. To them, the rational thinking appears too narrow, confined and opinionated.
A good investment decision requires a mix of both approaches. The former brings rationality, the latter brings innovation. In itself, either approach is wrong. The above analogies, of course represent two extremes of a continuum. An ideal investor would be a centrepoint on this continuum. Unfortunately , none of us is. I fall in the second category and you in the first category.
We must consult three distinct areas of our consciousness to make an investment plan (ie to go long, or short or just watch from the sidelines). We must know what we know (our knowledge and our convictions), we must deal with what we don't know (our research), and we must identify and understand that we don't know what we don't know - that we will never know everything there is to know (our limitations). The third point often plays a larger part in investing decisions than we often care to admit. If we discount it, we end up being either totally rational or totally irrational - the two extremes of my continuum.
With that little background - I can discuss my investment style -
The innovative/entrepreneurial part of me believes in long term holding, believes that YHOO will be the next MSFT of its kind. The rational part, which helps keep me off the streets, helps me eat, makes me recognise my **limitations*** in changing market directions, sentiments. It makes me aware of the fact that I **MAY** think I'm right, but I **CAN** be wrong. After all, who can be right all the time ? It makes me aware that there are things I know I don't know as well as there are things I don't know I don't know. That part instigates short term trades in YHOO.
I believe the market cap is justified based on future potential. I would rather we create new measures of valuation and success. Internet is a evolving industry and will triumph. YHOO being an industry leader will emerge one way or the other. I will always be long YHOO one way or the other. BUT, will Iwait for Utopia, am I willing to wait and ride the rough ride ? NO WAY. I'll try to take the good and leave the bad. But I'll always be here and long because I do believe in the emerging pattern. The rational part of me trades on perceived market sentiments rather than on fundamentals for gains, for satisfaction I choose companies like CIEN.
Somehow or the other, I believe that even though most YHOO longs may not know the psychobabble behind their decisions to go long, they are of my kind - the second category of investors I outlined. And the shorts are of the first kind. My kind find it difficult to set a target price for sell off because YHOO has blown away the targets so easily. I'm in my comfort zone when I'm long YHOO becoz I hate setting targets and objectives. They are never absolute - and the opportunity costs of changing objectives and goals is very high for me.
Understanding personalities and styles prevents me from classifying people as right or wrong in their choice. Its just a perspective - an investment style based on an investors personality type.
This gets off topic very quickly and YHOO board is not the forum. But hope this helps.
Hope this helps clear a YHOO long's reasoning.
JMHO.
PS : My apoligies to Guru, MadDog for analysing their actions without their permissions. None of this is cast in stone. I may be wrong in my analysis. Often it is difficult to predict a person from their writings.
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