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

To: Tom Trader who wrote (16347)	1/25/2000 2:37:00 PM
From: Mike Buckley	Read Replies (2) \| Respond to of 54805

Tom, Welcome! You made some good points. I'd like to respond to one of them in a way that might or might not help answer your question. (Actually, I don't think it will help.) If it is of brief duration, then one can stay the course -- but if it is long and prolonged like the 73-74 bear market, I am not sure how many people -- even the buy and hold types would be able to withstand it. I am not talking about the funds for living expenses -- which people have set aside. I am referring to the emotional component that will come into play at that time. Let us not lose sight of the fact that when there is a major correction, the declines that occur in even quality stocks like a QCOM have no relationship to the underlying value. None of us know what we will do until we are confronted with the exact circumstances for which we think we are prepared. Most of us have not experienced a market like the one that occured in the 70s. My only hope is that we don't experience the same macro-economics that helped perpetuate the downside of that market. Given current economic factors which are far different from then, I don't see a high probability of returning to a decade of prolonged downward or sideways stock prices. Just my opinion. Glad to see yours. --Mike Buckley

To: Tom Trader who wrote (16347)	1/25/2000 3:01:00 PM
From: mauser96	Respond to of 54805

Market history shows that despite the fact that participants claim to be LTB&H during market upturns, a large number of them will panic and sell during a bear market. The number of market investors decline, so since the number of shares remains about the same, this implies that outstanding shares tend to concentrate in fewer hands at lower prices. Presumably these are the ones less prone to panic. I have seen some figures on the Japanese market, and the pattern is the same. By their nature, GG stocks are volatile - they go up fast, they go down fast. You are right about that gut wrenching feeling - since it's a feeling, an emotion, maybe there's not a lot you can do to prevent it. However, the gg gives you the best basis I know for a rational non emotional approach, which hopefully will allow your intellect to over rule your emotions. People who hold stocks based on recommendations by others or because they have gone up lack this intellectual support. Often the only way to know how good you will be at this is to live through a nasty bear and see how you react. As you know, there is often a disconnect between the "intrinsic worth" (however you calculate it) of a company and it's stock price. The gg teaches us that gorillas are likely to be long term under valued on a long term basis even when the market is high, thus substantially reducing the chances of "abject failure".

To: Tom Trader who wrote (16347)	1/25/2000 4:55:00 PM
From: david barr	Read Replies (1) \| Respond to of 54805

I am referring to the emotional component that will come into play at that time. Hi Tom, I am a relatively young investor and feel that I have made an incredible number of mistakes in my short time in the market. Fear, jealousy, and greed have all come into play and wreeked havok on my portfolio. As a result I am in no way qualified to respond to your inquiry from a proven track record. However, there are two things that come to mind from your post that are the corner posts that I intend to lean upon in case of a downturn. 1) Downturns will happen and I have learned how incredibly painful they can be. What I mean is that I know from experience the emotion involved. The pain of selling at a bottom due to margin calls...etc When my gut is churning and it feels like the end of the world. This feeling is now recognizable to me. So what do we call it well... experience, I guess. As a result, my knowledge base is not only of pe ratios,... etc but it includes self knowledge. This allows certain hedges to be built in, to help me not to sell during downturns. The most important one is low margin or none at all. Second, (and intangible) is the intellectual knowledge that downturns are going to happen and the bitter taste of what that will feel like. You were referring to a bear market rather than a downturn so I realize that I am not totally hitting the nail on the head here. However, I contend that our personal failures can be a tool that we use to model a potential major correction. For example, I purchased shares in CKFR and watched it go down from $40 all the way to $6. This is one example of my own personal bear market. I happened to sell in the twenties in that case. However, it was due to a margin call. Lesson: margin is very dangerous in a downturn. I realize that everyone knows this already, but what I am aiming at is that my knowledge must rule my choice of stocks as well as my emotion. Whether it is for individual stocks or the market as a whole. It is not possible to invest and be free from fear. A corollary perhaps is do not fear fear itself. 2) Gorillas are inherently safe investments. The high beta comes with the turf but in and of itself it is just a number. I don't mean to mute this measure of volatility rather to change focus. We know that they will be volatile but instead of focusing on the ups and downs the more significant information is whether the market positioning for my stock has changed. For example, the most significant recent post on QCOM was the defense of the patents in Korea(IMHO). That is how I will decide to sell or not. Thus the high beta does not matter. The position of a gorilla in a market is so strong that I am able rest at night with the knowledge that these are incredible companies that are positioned better than most others. Come to think of it if we were to do a cheap classification of all stocks in gorilla terms then each company is either a gorilla or not a gorilla. It kind of sounds dumb but I'd rather be invested in the gorilla. When the whole market gets a thrashing then we know that we are just one of many that are getting whipped. Finally, if you purchased a stock and it makes a significant upward move then I find it easier to hold because no matter what it is still in the black. Although this is minor it still helps me not to worry about my stock. Dave