THIS MONTH IN THE FRONT OFFICE - Part 2
The Front Office GOrilla Game
To cut to the chase:
History Year Quarter
S&P 500 20.24% 8.61% 3.79%
Gorilla Game 18.05% 7.42% -10.92%
Russell 2000 -6.52% 2.57% 8.85%
Two months ago our game was up 41% and the S&P 500 was up only 15%
in the "history" column. As you'll see above, in the two months
since then we've given up more than half our profits while the S&P
500 has increased its profits 33%.
Considering that all of our stocks are either small- or mid-cap
stocks depending on your definition, it's not unimportant that the
Russell 2000 is still in the negative category and continuing to lose
signifcantly to our game. All our stocks joined the smal-cap
correction that culminated in October, 1988. Since then, every
weekly measurement in the "history" column shows our game
outperforming the Russell 2000.
The stock-by-stock details:
& of
Company Portfolio In at Now Change
Clarify 37.4% $13.25 $23.50 77.36%
Remedy 21.1% $17.44 $17.50 0.34%
Siebel Systems 35.2% $23.00 $38.44 67.12%
Vantive 6.1% $27.63 $8.00 -71.04%
As a reminder, the Front Office Gorilla Game was started with $10,000
(all fictitious) on Memorial Day weekend of 1998. Commissions are
based on $8 per trade. Because the cash position is inconsequential,
there is no accounting for interest. The summary:
Stocks $11,774.25
Cash $30.27
Total $11,804.52
Restructuring the Portfolio
I've given thought to removing Clarify and Vantive from the portfolio
because it seems that they have little chance of becoming a gorilla.
However, I have decided for the moment that they do, indeed, have a
very small chance of becoming a gorilla. If Siebel Systems ever has
the kind of problem that the other leading front office companies
have had in the past, and if Clarify or Vantive power forward at the
same time, each of those two stocks would have a shot at becoming the
gorilla. I will grant that the possibility is remote, but for the
time being I'm not willing to rule it out entirely.
In that context, it's clear that Clarify and Vantive are both
chimps. The book's investing rule about chimps is to hold them
lightly. The above data shows that Clarify is currently the largest
position in the portfolio. Obviously, to comply with the rules of
the game, an adjustment is needed. I will sell two-thirds of the
Clarify stock. Cash funds will be divided equally among Remedy and
Siebel Systems, the most likely gorillas of the help desk software
and front office software suites, respectively.
The new alignment resulting from the changes puts Siebel Systems at
about half of the portfolio. Considering that the company has had
the most powerful and consistent growth of all our gorilla game
players, that makes sense.
Though Remedy's stock has been an underperformer in the 11 months
we've owned it and the company has had its share of fundamental
problems, Remedy continues to be the far-and-away most successful
internal help desk software provider. I'm comfortable that the new
allocation increases the exposure of that stock to one-third of the
portfolio.
Clarify, in its current role of chimp, is reduced to only 12% of the
portfolio. Vantive, which has had by far the most problems of all
our gorilla gamers, remains unaffected at half the exposure of
Clarify, the more successful chimp.
The details of the new allocations are as follows:
% of
Company Portfolio
Clarify 12.4%
Remedy 33.6%
Siebel Systems 48.0%
Vantive 6.1%
Having burned $24 in commissions and disbursed our cash to remain as
fully invested as possible, the new totals are:
Stocks $11,764.81
Cash $15.61
Total $11,780.42
Ain't it fun playing a gorilla game with not-real money?!!!!!!
Disclosure: I own Siebel stock, have owned other of these front
office stocks from time to time, and will consider positions in any
of them.
--Mike Buckley |
