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

To: chaz who wrote (23173)	4/20/2000 11:06:00 PM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

then what's not sensible about selling after runs 1) News may come out the next day that makes the previous high price look cheap; 2) Pre-tax returns resulting from selling often must be much higher than the pre-tax returns of rarely selling in order to match the after-tax returns of long-term holding; 3) It takes a lot of time to be confident that the decision to sell is the right decision; and 4) Despite how confident you are, you still might be wrong. --Mike Buckley

To: chaz who wrote (23173)	4/21/2000 7:56:00 AM
From: Seeker of Truth	Read Replies (2) \| Respond to of 54805

Buying on dips is sensible. Selling after runs is not sensible. The whole idea of Gorilla investing is to trade cash for something more valuable, a stock that will use its quasi-monopoly power for a long long time. If you take the view that yesterday was a good day to acquire a gorilla but today because of the higher price it's a good day to sell it then you are a trader not a gorilla investor. Long holds of great stocks are more profitable. Do you think anybody made as much money trading in and out of Cisco as the long term holders? There are frictional costs of trading, income taxes, bid/ask gaps, brokerages. There are also lost opportunities. The more consistently you trade rather than invest over a longer and longer period, the more likely your record will be mediocre at best. These days it seems like sellers are all smart. But that's not true of the market 2/3 of the time. Increase in price is a normal phenomenon of a gorilla. Some people on our thread have two portfolios, one for gorilla investing and the other for trading. Action is fast for the latter part of the portfolio but if they keep careful records, including income tax paid, they will learn lots about what really happens to their money, as opposed to a general impression. It's different when one changes one's mind about the gorillaness of the company. As for "brains enough to see it topping out", Buffett remarks: "Anybody who thinks they can time the market short term shouldn't be allowed to talk to children." There's yet another point. Traders tend to lose their normal lives to trading. Family, friends, nature, the arts, the world scene, a citizen's responsibilities, all fade away, replaced by up 7/8 and down 3/4. Long term gorilla stock owners don't have to look at the market every day. In a word, selling after jumps has other concomitants. You wind up not having as good a life and not even making as much money.

To: chaz who wrote (23173)	4/21/2000 10:16:00 AM
From: alankeister	Respond to of 54805

If buying Gorillas on dips is sensible (and we have brains enough to know they're genuine dips), then what's not sensible about selling after runs, (if we have brains enough so see it topping out)? I think you answered your own question. Most of us don't have the brains. Properly timing the bottom of a dip is hard. Add to that properly timing the end of a run and you have a very difficult task. If your objective is to get in and out and back in a single equity, I'd say you will most likely lose money after tax. I think this may be why so many mutual funds underperform the market. Having said that, there may be some benefit to trading stocks that have very predictable returns in that manner. I paraphrased Peter Lynch in a post a few days ago. He said in his book, "One up on wall street", that he trades Stalwarts more actively than other companies. His reason is that the growth is predictable so you can more easily identify value. When a stock you hold is overvalued, sell it and buy one that is undervalued. Mike Buckley replied to my post quickly and said he believes it is still a loosing strategy given taxes. I don't agree. The addition of taxes just means you need to sell when your holding is more overvalued and buy a better value. It shouldn't be too difficult to put together a formula to calculate the break even point given an estimation of how over valued a stock is, how undervalued a potential purchase is, and estimated return from not selling over X years. I've been meaning to put this formula together but haven't had the time. - Alan