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

To: Mike Buckley who wrote (22776)	4/14/2000 11:21:00 PM
From: kumar	Read Replies (1) \| Respond to of 54805

Mike, I am at a loss to understand how "todays valuation" for a Gorilla matters in a ltb&h scenario. my understanding has been that CAP & GAP are the preferred ways to evaluate Gorillas, because "the market consistantly undervalues Gorillas", because "the market" doesnt comprehend CAP & GAP. pls help me understand ? cheers, kumar

To: Mike Buckley who wrote (22776)	4/14/2000 11:41:00 PM
From: Riskmgmt	Read Replies (1) \| Respond to of 54805

Hi Mike: Good to see your logical posts in a crazy market.<gg> I read over the part of the manual on GAP/CAP. Some points I found may be worth repeating. (Not verbatim, so refer to page 119 of RFM. The authors state that the market will underestimate the returns that a gorilla can earn in a tornado market and underestimate the duration of the Competitive Advantage Period (CAP) The market will eventually correct matters but in fits and starts. In times like these I think it is wise to remind ourselves why we are in the GG. The Gorilla has the potential to generate superior earnings due to it's GAP. The Gorilla has (by contrast to others) very long CAPS. The Gorilla has lots of upside and also limited downside The Gorilla lets you make timing mistakes. Page 15 The authors also recommend consolidating your holdings in the Gorilla. Consolidate not diversify Andplan to hold long term Now, I realize that I am preaching to the choir here but I have noticed a tendency by many of us, including myself, to take the Gorilla (Intel,Cisco,Qcom etc) for granted and spend our time and money chasing other companies. I am guilty of spending more time trying to find the tornado's and next Gorilla than keeping up with the Gorillas that make up the bulk of my portfolio. Judging by the posts I read I suspect that I am not alone in this. This weekend I am going to review my whole portfolio with a view to selling everything other than Gorillas and putting the funds into the two best Gorillas for the price. I figure if the sell off continues the Gorillas will hold up better and they will also, be first to recover when we turn up. regards, Ray

To: Mike Buckley who wrote (22776)	4/15/2000 4:25:00 AM
From: Bruce Brown	Read Replies (4) \| Respond to of 54805

RE: Valuations do matter... 1) I've never believed that any time is a good time to buy a Gorilla regardless of valuation; and 2) I've always believed that valuation DOES matter. I will agree with you on those points. I made a post on the Fool GG board about taking a look at those valuations using some metrics over the weekend to see where things stand now in comparison to what appears to have been excess of recent. boards.fool.com Of course, we only have Silverback Oracle's most recent quarterly report to run the trailing 12 month total revenue figures to come out with a current P/S ratio and YPEG figure. I would think that if anything, gorillas have simply been moved down to more 'normal' valuations (pre November) rather than moving into 'screaming buy' areas as of yet. Based on the trailing 12 months of revenue that we do have, Cisco remains the Silverback with the highest P/S valuation. It is still over what Moore called 'normal markets' for Cisco and Microsoft's P/S of 16 - 18 of recent years. Siebel is a little higher than Microsoft, Qualcomm and Oracle, but we could argue that the premium for the kind of growth Siebel is experiencing is justification for that. That's only one metric, but when compared to what those ratios were just last Friday or a month or two ago, they've come down. Once again, we need the latest quarterly numbers to update those ratios. Although the next portion of this post is aimed at something bp (Betty) brought up, I thought all would be interested. I have posted this data here before, but once again it is valuable since we are in a correction. This data shows what the significant corrections and recoveries have been in time table and percentage terms for the technology sector since 1983. Technology Stocks as measured by the PSE Technology Index Recoveries following significant corrections (1983 - 1999) Period % Decline Period % Recovery 10/83 to 7/84 -37 % 7/84 to 2/85 34 % 2/85 to 10/85 -27 % 10/85 to 4/86 65 % 4/86 to 9/86 -19 % 9/86 to 10/87 65 % 10/87 to 12/87 -43 % 12/87 to 7/88 36 % 7/88 to 11/88 -23 % 11/88 to 7/90 43 % 8/90 to 10/90 -35 % 10/90 to 1/92 107 % 1/92 to 10/92 -24 % 10/92 to 3/94 67 % 3/94 to 4/94 -16 % 4/94 to 9/95 97 % 9/95 to 1/96 -15 % 1/96 to 5/96 28 % 5/96 to 7/96 -25 % 7/96 to 1/97 57 % 1/97 to 4/97 -15 % 4/97 to 10/97 51 % 10/97 to 12/97 -22 % 12/97 to 7/98 39 % 7/98 to 10/98 -30 % 10/98 to 12/99 267 % Using an average basis not counting the current correction, the average technology correction has been -25.46% while the average technology recovery has been +73.54%. Even if we take out the 98/99 recovery of +267% from the average, the recovery average still weighs in at a handsome +57.42%. Now I'm sure, if somebody was willing to compare the individual company corrections and recoveries for all those periods in the table, we might get an accurate read on how the share price of companies in various stages of their technology adoption life cylces and royalty or gorilla status behaved. Being that golf season has arrived - I'm not up to the task.... And through it all - bear/bull/interest rates up/interest rates down/war/gloom/euphoria, including this correction to date, the following companies - whether they be gorillas or royalty - show what the longer term has provided investors. Intel: +14,333 % Microsoft: +38,715 % Cisco: +141,614 % Oracle: +49,476 % EMC: +29,233 % JDSU: +29,876 % Dell: +48,637 % siliconinvestor.com So the question to Betty is, what is more important - the technology adoption life cycle or bear/bull market periods focused on short term and intermediate term consequences? If and when I see concrete evidence - that proves to me beyond a reasonable doubt - investing based on bear/bull market periods that includes the correction/recovery phases listed above which provided investors a better return than those listed above, then I will simply continue to believe that the technology adoption life cycle and the core of gorilla gaming is indeed the most risk averse method of wealth accumulation in the high technology arena. If it can be proven and documented, then history will be rewritten and a lot of cash will be stashed under the mattress. To be fair, I will say that I did raise cash earlier in the year as I explained before due to reaching a comfort zone that satisfied both my wife and my investing goals. At the time, it was 32%. However that has grown as my investments have fallen in value. Back to Mike's concerns. Indeed, valuations do matter and the recent correction has provided that in at least this particular case of the past few months of market momentum, a little patience by investors waiting to add shares or purchase initial shares in a company would have proven fruitful. For those of us who have been holding shares for many months/years, we can easily say that compared to one short year ago, or two years ago life appears very grand in spite of the correction we are going through. For those that bought shares at higher prices, if history proves itself again, then time will be on your side for all of it to work out over the next few years. Yes, this takes patience, but investing is about patience and time. "Thus spaketh a tortoise." Regardless, we did have a lot of discussion here at the end of 1999 and beginning of 2000 where valuations and gains were mentioned which led many of us to take some of the gains off of the table while leaving a healthy portion invested. Now we are indeed at a reflection point with possible shopping lists of adding some shares of things and it seems like an appropriate time to consider the valuations and growth rates of these companies before jumping in gung ho. We will have the opportunity to see once again, as in 1998, how the Silverbacks and market in general works through a correction/recovery period that didn't involve anything with the core business of the companies - simply the valuations of the stocks of those companies. Now, if somebody told me that all technology adoption life cycles were cancelled - I'd start to worry. <ggg> BB