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To: BGR who wrote (76166)	11/18/1999 8:13:00 PM
From: Oblomov	Read Replies (1) \| Respond to of 86076

Yes, I'm including all transaction costs, including taxes (your point is not nitpicking). The beta of my portfolio is currently less than 1, since I'm sitting on a large cash position (40%) at the moment. It has been less than 1 (1=NDX) for the majority of the 90s. I like to construct portfolios with a high beta component (value tech), and a low beta component (short sales, cash, income stocks). I like having cash on hand, and have rarely used margin. What I am not including is the opportunity cost of spending time doing investment research. This amount of time is non-trivial, and it accounts (IMO) for whatever excess return I may realize. But, that cost is usually not included in anyone else's reported returns, so I believe that I am being honest in claiming outperformance. I may not be the average investor, but neither are the funds you mention... yes, the average investor is in these funds, but the funds are limited in their actions in the way that an individual investor is not. For example, JDSU became > 20% of my portfolio (I sold a bit recently) - a fund manager would never be allowed to have that kind of exposure to one stock. I can jump in and out of stocks without moving the market significantly. This gives me a great deal of liquidity, and latitude in my decisions. Value: I think it can be quantified, but I'm not at a level of experience yet in my investing life where I can entirely quantify my past decisions about value. But let me try: it starts with earnings. The record of earnings growth over the last year or two is of paramount importance. Second, there must be new products on the horizon that have a good potential market. The quality of management is also important, and it should be evident in the ROE and level of R&D spending. The Price / sales is important... the smaller it is compared to its peers, the better. It must have leadership in the industry. What creates a value situation is when a stock exhibits these characteristics, but Wall Street seems to shun the stock, seeing the negatives only... the disbelief is necessary to generate intermediate-term and long-term upside. To quantify it, consider this model Let A = 1 + Earnings Growth % over last year. B = 2 if new products on horizon, 1 if not. C = 1 + (% ROE) D = 1 + (% revenues spent on R&D) E = (industry average P/S/ P/S) F = 2 if industry leader, 1 if not. G = % institutional ownership H = analyst "buy" or "strong-buy" recommendations Now, let X be the momentum cluster. X = A * B let Y be the management cluster. Y = C * D Z be the relative value cluster. Z = E * F Then, let W = 1 year future returns on the stock. I claim that ln W = a * X + b * Y + c * Z + d * G + e * H, where a, b, c, d, e are in the set of reals. (Actually, I rely more on my instinct than on a rigorous model, but consider this a start)