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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (3660)	7/11/1999 11:36:00 AM
From: John Stichnoth	Respond to of 54805

Good points. But the risk/reward rate aka the required rate of return should also be dependent on the risk of the business. Ie., I'm much more willing to hold Cisco at 100 times earnings than I am to hold Globalstar (though G* has no earnings, so go figure!) My point is that cisco's future earnings are much more transparent than say Pairgain's, or Globalstar's. Therefore I am willing to wait longer for a payback, or I will assume that Cisco's PE will revert to the mean at a later date than the others. I think discounted future earnings is a useful tool if you use it as part of a Yes/No decision process, not as a guess of future return. For QCOM, I am reasonably confident that I can foresee earnings out 5 years. If I can be confident of $20 per share earnings in 5 years, then a 30 PE (reverting to the mean?) will give a $600 stock. And Q would be attractive valued against a 12% discount factor--if I assume that 12% is a reasonable proxy for the risk I'm taking. Alternatively, I might consider Dell, but I would probably give them a somewhat higher hurdle rate for the reasons discussed upthread (no proprietary technology, more competitors, etc.).

To: Mike Buckley who wrote (3660)	7/11/1999 1:16:00 PM
From: LindyBill	Read Replies (3) \| Respond to of 54805

this method of evaluation would never, ever work for LindyBill. Yeah, I am a bit of an optimist, aren't I? :0) I have never liked the "Risk Analysis" or other math approaches to investing. They seem to work on the following type of assumptions: 1: All Germans are Philosophers 2: Aristotle is a German 3: Therefore, Aristotle is a Philosopher The logic is valid. The answer is true. So what is wrong? The premises are false! This "false premise" problem is inherent in computer modeling, IMO. We all call it "Garbage in, Garbage out", of course. It is the tool used as "computer modeling" on all the "Global Warming" theories, and is causing us no end of trouble there. I might see value in this approach if you want to compare companies and always use the same rigid setup, but, of course, no two companies are the same. The most useful new tool I have found is the one we are now using here for Gorillas and Kings. For instance, take a look at the following chart. 127.0.0.1:3456/SI/~wsapi/investor/chart?s=intc+msft+csco&pts=50&span=Weeks It shows a 50-week history of our three "Silverbacks". A portfolio split between them would have yielded about a one-year return of 112% over the last 12 months. And it would have done so with what I would consider to be perfect safety. If you go YTD on them, you would have a return of 16.9%. Not up to my standards, but not too shabby. I would expect that, by the end of the year, you would have a 70% average return ,or better, or these three. So, using our approach, we have found an excellent method for investing, without having to "math" ourselves to death! Now, I think I will set myself up for some "Flames" by discussing the type of people that follow these chart approaches as their main way to look at the market. When I read your posts on these threads, I am reading your mind, or as close to doing it as is possible. If you post a lot, you really disclose a lot about yourself, even if you don't want to. When I see an interesting post, I usually go to the person's profile and read a series of their posts. If I like what I see, I invite them over here. What am I looking for? An intelligent, reasonable person, who has a good command of the language, writes well, and has something interesting to say. Many times I have seen a post from someone who seems to fit this description, who is posting a math-oriented message, using some sort of complicated charting. Sometimes, when I check them out, they fit my model, and I invite them over. However, it is astounding to me how many times these people turn out to be negative, quarrelsome, types that I don't want to be within 20 threads of! There seems to be a correlation between an excessive dependency on charting and a sour outlook on life. They want to get into endless arguments about their "Doom and Gloom" approach to the Market. People like me are "Polly Annas" by their standards, so perhaps it is just as well that we avoid each other.