GG: INVESTMENT PRIMER
To: Uncle Frank who started this subject
From: wopr1 Saturday, Mar 4, 2000 8:47 PM ET
Respond to Post # 19408 of 19446
Evolving GG Investing Strategy
I am attempting to crystallize the evolving GG strategy of this board. The board has recently clashed on which is the more important criteria: proprietary architecture or hypergrowth markets. For example, Tigerpaw wrote, "I am rapidly discovering that the real money (real quick) is to be made in tornados whatever the outcome." (See, SI #19192.)
OTOH, we have the "purist" view typified by UF which seems to focus first on the genes of the new company. Does it have a proprietary architecture with high switching costs. If it doesn't, then my money is safer and better placed within known GGs.
OTOH, we have, for lack of a better term, the Mo-Mo view, which focuses primarily on the Tornado market, typified by Mtn "I'm addicted to tornados" Lady. (See, SI # 19204.) This view cares less about the genes and more on growth, reasoning that a small cap company hitting hyper-growth will give me the greatest return in the shortest time.
These two views have recently "clashed" when some suggested that the board should be searching for tornado markets first, and then worry about the genes of the company. (See, SI# 19192, 19204.) While others were more cautious. (See, SI# 19208, 19223.)
As a rookie, I am attempting to reconcile these two views into a Long-Term vs. Short-Term approach. While ultimately any investing strategy turns on the individuals tolerance for risk, I am hoping to justify the focus on hyper-growth markets as the primary focus.
1) Short Term- Pick a Basket of Hyper-Growth Markets:
a) Find a market that has 100% y-to-y growth and
q-to-q growth that is accelerating.
(RFM, p.223; but see, RFM, p. 35
[marking hypergrowth at 300%].)
b) Determine whether your selection has a
disproportional market share circumstantially
showing its gorilla power (RFM, p.228.)
c) Market Capitalization: 5 to 15 bil.
(This is my tentative criteria, any
critical feedback would appreciate on this.)
The idea would be that, "it is very hard for any company to lose money in a hypergrowth market." (RFM, p.15.) Here the buyer would get a basket of companies in different sectors regardless of whether the company had strict GG genes. For example, the buyer would get into Bandwidth (JDSU), Storage (NTAP), Wireless (Qcom), LED's (Cree). The focus would be less on any individual company status as a GG or King, and more on the growth rate of their market, ie, bandwidth, storage, wireless, and LED's.
Note, this is not a pure Mo-Mo play. Investing in a stock just because it went up 33% yesterday is a fool's game. However, investing in a hyper-growth market where the stock is going up 33% is, hopefully, a rich man's game. Further note that I am assuming alot of other sub-criteria have been met due to the hyper-growth, ie. the product has crossed the chasm and a value chain is established.
2) Long Term- Hold Only the GG's, and reinvest your Non-GG's In a New Hyper-Growth Market:
Here, the investor is going to weed out his/her long term vs. short term holdings. Now the company's GG genes are all important. Here, either the growth rate, PE, or market cap has caught up with the company. The investor must make a critical decision whether to keep the company or sell. And the best weeding out criteria is the GG criteria.
Thus, from a long term perspective, you would hold your MSFT, CSCO, and INTC, and enjoy the long-term benefits of the GG's CAP. (See, RFM, p. 98.) These would be your core holdings because, after applying the GG analysis, they are keepers.
As for the remaining companies, after you rake in, no, truck load in, your earnings from the hyper-growth company, you would look to a new hyper-growth market. For example, if JDSU hits a growth wall at 2003, you would sell your King and maybe look to a new budding market with ELON. (Which will hopefully be in its hyper-growth state by 2003.)
Or, with market cap, if JDSU hits the 200 bil to 300 bil market cap, and the 2003 growth rate is already factored into the stock price, you sell. (I need the most feed back on the market cap argument.) (See, SI # 19107, 19110.)
In the end, perhaps this strategy only defines the difference between the W&W list and the G&K list. Further, I think that most people have adopted this stragety.
As a rookie, and a newbie, I have nothing but respect for the thread. This thread is the only reason SI could pry $199 out of my monthly investing. Just writing this has helped me. I look forward to getting into the Hunt Project.
Respectfully,
WOPR
EOM ------------------------------------------------------ |
