Happy girl,
You have several great points in your reply to me. First, it's usually a win-win situation to stick to sector leaders, and by sticking to MSFT/DELL/CSCO/AOL/YHOO/LU for since last April, I made a killing in my investment. However, for the first 3 months of 98, my strategy was to focus on small issues like FGI, IDTC, EGRP, YURI, and CYMI. All of them are dogs now with the exception of EGRP. YURI was taken over by LU. But I did manage to more than double my investment within the first 3 months of 98. The reason for my shift to big cap tech issues? Market sentiment! By sticking mainly to DELL, I was able to grow my portfolio even when the market crashed, and I did not buy puts or short stocks heavily. My point is, as you mentioned, by sticking to winners, you will be fine even in the darkest days.
Then came the internut surge. I guessed correctly about the trend and was surprised at how easy the $$ can be made by sticking to nut leaders, or more surprisingly, trash dot-com issues that will probably go bankruptcy within 2 years. My confusion is shared by my peers, who, in their 40-70+ years of investment experience, have never seen such mania. One guy repeatedly tells me recently that current market bears striking similarity to the famous crash he witnessed 70 years ago. And he does believe that market sentiment can run irrational exuberant for a long period of time. But eventually, nothing will defy gravity and the underlying fundamentals will decide the price of stocks.
I don't pay too much attention to PE, but will monitor PEG, PSG, cash flow, these issues, carefully. And I believe that a company needs to make $$ to justify its market cap.
You argued that as long as we keep keen eyes on market sentiment of investors and know where the hot $$ goes, we will be fine. I agree this argument to a certain degree, but the tulipmania, biotechmania in late 80s, casinomania, restaurantmania, IOMmania, ZITLmania essentially bears the same thinking. All of these issues were wonderful at their peaks and people say that valuations did not matter because these issues have unlimited potential and will double every couple of months. So why should those investors panic in the end?
larry! |
