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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Wright Sullivan who wrote (9641)	1/15/2000 11:42:00 AM
From: LauA	Read Replies (1) \| Respond to of 78670

Wright - thank you for your post on the Lowenstein article. I think that it's important for value investors to be willing to explore the 'road not taken'. I had to chuckle this AM because as I posted during December 1999, my January Effect vehicle was BRKb. In final frustration because BRKb had a 'painting the tape' bounce on 12/31, I bought WSC. All of this was predicated on exploiting Buffett and Munger's ability to spot value. I was guessing that WSC was about to be merged into BRK. Now I see that WSC has sopped up their free cash by buying CBZ. Office furniture stocks such as Steelcase WERE discussed on this board, because they were looking cheap. No one ever thought out of the box enough to consider what the dotcom industry does to traditional industry. In the spirit of "Why didn't I think of that?", I realize that I have had personal experience with virtual companies that appear out of nowhere, grow very fast, merge, die, and reappear. An axiom in silicon valley is that doing business in a garage is fun history, but if you want to get VC funding, you need to inhabit some credible-looking space with partitions and 5-legged roll-about chairs. To buy it requires capital that's not available before IPO. CORT makes sense. Who says Buffett doesn't understand technology? Then I saw this on Yahoo: << some of the posts on the CORT message Board say it owns a company called HOMESTORE.com, which was featured in Forbes January 10. I can't tell much about this company, but one message says that CORT owned $18 million worth of HOMS when HOMS was $41.1 a share, and today HOMS is $81 a share. >> Which may indicate that WSC is buying a Buffett-type stock that contains a hidden cigar butt. Lau

To: Wright Sullivan who wrote (9641)	1/16/2000 3:16:00 AM
From: James Clarke	Read Replies (3) \| Respond to of 78670

Wright, you quoted Lowenstein saying "The true polar opposite of value isn't 'growth' but momentum". That really really made me think. So many institutional value managers (actually just about every one I know) are trying to work momentum into their value strategy by avoiding stocks with falling estimates, avoiding stocks hitting new lows or with declining relative strength, or trying to buy only when the stock is already rising. I fight hard against such ideas within my own firm, but it is what our clients want to hear, and in an environment like this for value investors you have to think about survival. But this is why stocks with falling estimates, poor relative strength and temporary problems trade at ridiculous prices - my mission in life as a value investor is to take the other side of that trade, especially if everybody else who calls himself a value investor is afraid to join me. The problem comes when you are early - if even value investors are playing the momentum game, to be early is to be killed. The response of a "momentum-value investor" would be that this keeps me from being early. Pull up two charts - CMH and KM. These momentum value investors piled into CMH at 10-11 and KM at 11 a month ago. Those were not good trades - you could have bought the same business 20% cheaper before, and after. They are piling into HRC now - we'll see how that one turns out. I'll add that line to my lexicon, because the more I think about it the more I realize he's right. I have never been one to say that value and growth are incompatable - I, like Charlie Munger, consider growth simply a tool to value companies. The notion in institutional investing that a low multiple by definition equals value is a terrible misunderstanding of the meaning of "value". But momentum by definition is buying what other investors want at the moment. I don't see any other way to cut that one. Value investing is precisely the opposite in my view, and to try to mix the two may have worked better than value investing last year, but I wouldn't make my long-run bets on that basis. The way I think about momentum is that these are the "investors" I want to sell to. The best value investments are the ones that turn into "momentum investments" for somebody else.