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

To: om3 who wrote (16884)	1/31/2000 11:48:00 PM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

Steve, To be honest with you (and please don't be offended by this) I didn't read much of your post. I can always go back to it if needed, but for now the issue is that I disagree with the premise upon which your thinking appears to be based. The problem is that if the market is efficient it will price a stock so that the return is just the risk-free interest rate plus a premium for risk. So even if the company is growing at a tremendous rate, the efficient market price will be so high that the stock price only grows at a boring rate. Take a look at the graphs on 100 and 107 in the revised manual. If you agree with the authors as I do, the efficient price is the risk-adjusted rate of return plus the economic value added. As the company continues to grow, it does so because of increased economic value added to the risk-adjusted rate of return. It's that growth that will fuel the stock price over the years even if if the market does efficiently price the stock. Even if you come to side with me on this, I believe it's nothing other than an academic scenario. It's simply not a realistic expectation that the market will consistently price gorillas and gorilla candidates efficiently. Make sense? --Mike Buckley

To: om3 who wrote (16884)	1/31/2000 11:51:00 PM
From: emmeling	Read Replies (1) \| Respond to of 54805

Excellent argument, Steve, but even with widespread knowledge of gorilla game theory, wouldn't there be an initial gap-up when the market recognizes that the company in question is indeed a gorilla? Companies aren't born gorillas, after all, they have to grow into their genes...which means that at one moment in time, the company would not be considered a gorilla and would have a "normal" valuation, while at the next, all hell would break loose. Of course it takes time to recognize this huge hairy beast spinning around in a tornado (most people don't expect to find gorillas spinning around in tornados and assume they must be cows), and it doesn't usually seem to happen except in retrospect -- by analyzing trailing revenues and such. Some people get it sooner; for some, it takes longer. (Sort of like a parent who doesn't recognize their child's become an adult until the child gets married...) So, scenario one, the company suddenly grows hair, everyone sees it, and the stock price goes up 1000% within the course of a week. (Not likely.) Scenario two, the company grows peach fuzz, a few people notice, then a few more, and it takes from many months to a year or two before the entire market is in agreement. Plenty of room to get in and make a nice profit (if you're one of the early folk). Nice that we have this board around so we can try to be some of the early folk. :-) --Tracey