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

To: tekboy who wrote (24687)	5/13/2000 8:30:00 PM
From: Thomas Mercer-Hursh	Read Replies (2) \| Respond to of 54805

I have a very hard time squaring our cherished belief that "you can't time the market" with what has happened over the last several months. Meaning that you knew this was going to happen in November? December perhaps? January? ... or is it just that, given the swing we have seen, you are thinking how nice it would be to have been able to time the market? "Gosh it would have been nice to ..." is an understandable sentiment, but one's, anyone's, inability to pick these times reliably is exactly what makes us here LTBH folks instead of daytraders.

To: tekboy who wrote (24687)	5/13/2000 8:39:00 PM
From: Mike Buckley	Respond to of 54805

tekboy, I have a very hard time squaring our cherished belief that "you can't time the market" with what has happened over the last several months. I wouldn't say that someone can't time the market. Instead, I'd say that it takes a huge amount of time and an even greater amount of luck to outperform the market consistently, so much so that it's not worth trying. The one element that is always possible is that a press release comes out the day, week or month after you sell that completely changes the fundamentals of a company. With growth companies in industries constantly changing, that's not as far-fetched as some might think. Of all the stocks I own, Citrix is the one that seemed so obviously over valued. Next was Qualcomm, especially at $200. But any number of situations could have made those prices only slightly overvalued. In the case of Citrix, we might have gotten information that the tornado had begun. In the case of Qualcomm, the right deal announced with the right partner could have sent the stock through the roof. And when you mention all of this in the context of ignoring taxes, unfortunately you haven't been persuasive enough to convince Uncle Sam to look the other way when it comes to my taxes. Had I sold Qualcomm at $200, I would have paid about $80 per share in federal and state taxes, meaning the stock would have to drop to $120 for me to break even on a short-term basis. Knowing the stock could easily drop to $100 (and in fact dropped to below that) isn't worth the guessing game that has to be played. And if I did try to time the market, the amount of time required to keep up with it might have prevented me from joining my friends at the Ring Cycle and the Yankees game, a price I would be unwilling to pay. --Mike Buckley

To: tekboy who wrote (24687)	5/13/2000 10:15:00 PM
From: Rick	Respond to of 54805

For people who follow the market closely and are reasonably adept at valuing things, it seems like it might make sense to try some timing. If the Naz were to go nearly vertical again later this year, for example--as much as it did from November to March--would you not take some profits, sit on some cash Whenever that happens there is always a slew of articles stating "this time it's different." And, in fact, this time it may well be different, but how would anyone know for sure? It's only with 20-20 hindsight that people believe they can tell when to get out. - Fred

To: tekboy who wrote (24687)	5/14/2000 12:24:00 AM
From: William	Respond to of 54805

I have a very hard time squaring our cherished belief that "you can't time the market" with what has happened over the last several months. OK, so now you are older and wiser. Say you bought a stock at $9 on March 1st. Say also on October 28th, it reaches $54. Do you sell? It's a six bagger. Oh, you want a ten bagger? OK, on December 1st, you have it. Your $9 stock is now $91. Do you sell? Just when do you sell? It's a hard call. Could the stock double again in a month? QCOM did. For my example dates and dollars are all for Qualcomm - 1999. Market timing, and market timing a big winner, are among the hardest things to do. William

To: tekboy who wrote (24687)	5/14/2000 8:16:00 PM
From: om3	Read Replies (1) \| Respond to of 54805

Thank you tekboy for initiating this interesting discussion. I think the most valuable lessons I've learned from the recent market downturn are not about the market but about my own response to significant losses. I moved away from mutual funds and into individual stocks with a focus on gorilla gaming in January. Fortunately my portfolio is about back to where it was when I made this transition but there were times when it was significantly below my initial investment. While I have always held significant amounts of cash, I discovered that it was not a high enough percentage for my comfort level. Market downturns bring out the bears and I felt I should read some of them to understand the arguments. The most compelling I found was Robert Shiller's book "Irrational Exuberance". He gives a history of previous market bubbles and crashes. He argues that many of today's (or at least March's) attitudes about equity investing are strikingly similar to those prior to previous crashes, particularly 1929. He has an especially scary graph of the S&P 500 P/E ratio from 1881 to the present which highlights its current extraordinarily high level. I got some solace from doing a web search and seeing that he's been saying the same things throughout the bull market of the 90's and has been trotted out whenever the market takes a downturn. Nevertheless, I do believe that there is some chance that he will be correct in his assessment at some point. I can understand the rational basis for high P/E's for high growth tech stocks (and in fact believe that the gorilla game argues that rationally they should in many cases be even higher than they are now). I have a harder time seeing why the entire S&P 500 should have a P/E ratio significantly greater than historical values. I can believe that everybody and their brother buying S&P index funds for their retirement as a "sure-thing" investment might be responsible. If that's the reason, then it is indeed likely to come crashing down at some point. Will that affect the more rationally valued gorilla stocks? Unfortunately, I believe it would. If one believes that there is a 10% chance of that happening in the next few years, how should one rationally structure one's portfolio? I have been trying to consider the various possible scenarios (eg. significant decline in valuations over a protracted period, continuation of last decade's bull at the same rate, a highly volatile period, etc.) and to estimate how likely they are to occur. I then try to imagine how I would feel in each scenario with different portfolio structures. Decision theory says that one should then choose a portfolio to maximize one's expected utility. I find that for myself, the downside of a significant loss much more than outweighs the upside of a similar gain. As a result I am considering moving to a portfolio weighted significantly higher in cash. For example, I am considering being about 50% cash and 50% gorillas. In the worst gloom and doom scenario where P/E's drop from the 40's to between 5 and 10, I would still retain over half my assets. In the best case I still have the potential for exponential gorilla growth on the other half. If you start with such a portfolio, then it seems like certain kinds of market timing are less risky. Given the extreme volatility we've been seeing, it seems reasonable to try to gain some advantage from it. Instead of flipping between being 100% in and being entirely out of the market (or going short), one can just adjust the balance between cash and stock much more slowly according to market sentiment. I am considering a strategy in which when I feel great and the market seems unbeatable (like in March), I sell a percentage (eg. 10%) of the stock portion. I am considering selling constant dollar amounts of each position in a gradual variation of Lindy's Russian generals. Stocks which have been doing well lose a smaller percentage, stocks which are falling behind lose a greater percentage and eventually will be eliminated from the portfolio. On the other hand when there is a dramatic drop (as so often recently) I will add a small percentage (eg. 10%) of additional shares. I would set upper and lower limits on the ratio between shares and cash and let it fluctuate between these limits to take advantage of volatility. Since I have both taxable accounts and a tax free IRA, I'd like to do most of the buying and selling in tax free account. Anybody see any problems with this strategy? I am aiming to gain many of the advantages of LTBH while having greater absolute protection on the downside as well as benefitting from the wild volatility we've been seeing. --Steve

To: tekboy who wrote (24687)	5/15/2000 11:33:00 PM
From: StockHawk	Read Replies (1) \| Respond to of 54805

>>I have a very hard time squaring our cherished belief that "you can't time the market" with what has happened over the last several months. << I read an article a while back that put forth the argument that market timing was held in such low regard among savvy stock market participants because the market had proceeded in an upward direction for many years. Timing in a generally rising market is a losers game. On the other hand, in the metals market, where prices have gone nowhere over a rather long term, market timers were held in much higher regard, since playing shorter term rises and falls was the only possible way to make decent money. StockHawk