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

To: tekboy who wrote (24691)	5/13/2000 9:57:00 PM
From: Mike Buckley	Read Replies (7) \| Respond to of 54805

tekboy, You're asking great questions. They need to be asked because everyone needs to arrive at a decision about the stuff you're considering. I admire the process. I hope I can be a help in that process. Whether anyone agrees or disagrees with me is unimportant. I feel in retrospect that one reason I got caught up in all the exuberance during the winter was that I was such a naive newbie. The more of a novice someone is, the harder it is to figure out valuation and timing. Being a novice is the best reason imaginable for thinking long-term. That's because having time on your side minimizes the effects of all sorts of mistakes and allows luck to work more for you and less against you. Obviously [LTB&H]is easy (every way but psychologically) and should eventually be profitable. I think it depends on the person. For a lot of people, LTB&H is psychologically especially comforting. It is for me and I know it is for others. But doesn't it seem only logical that people who actually know and care a lot about valuation (Merlin, BB, Pirah, etc.) should put that to use to gain an edge? As I explain often, when factoring in taxes there is very, very little edge to be gained even in the most overvalued scenario. In most scenarios, there's nothing to gain and much to lose. The risk/reward scenario involving taxes over a 30-year period is not good for individual investors. Besides, I DO use valuation when looking at entry points for stocks. If I see two companies in two industries with comparable long-term growth, I'll definitely select the company that seems to be significantly less expensive on a relative basis. Where a lot of people made mistakes recently is that they bought stocks at absurdly (pardon me if I appear insensitive) high prices considering the short term. If they want to hold for a really long time, those absurdly high prices will eventually look absurdly inexpensive. It's only the people who are right now focusing on the short term who are upset that the price is a lot lower than the purchase price. I have a theory about why more people became excessively rich in the real estate market than in the stock market (until the most recent decade if that statistic is no longer true.) Real estate is less liquid, forcing owners to buy and hold a long time. If stock investors were forced to hold a really long time they'd be a LOT richer than they are. Why isn't market timing comparable to stock picking, which all of us do rather than simply buy an index fund? Because long-term holding combined with judicious stock-picking is different than short-term holding combined with jusdicious stock picking. It's one thing to pick the right company. It's another thing to know when to sell it, buy it back again, sell it again, buy it back again, etc, etc. The best evidence I can provide is my own anecdotal evidence. As a matter of fact, I want to thank you for persuing this line of conversation that motivated me for looking up the data. Frankly, as much as I hope I can show my friends the value of long-term holding, the data confirmed my own beliefs that it's right for me. So, yes, thank you! Now the data: Consider four of the six stocks I own. (I'm eliminating Qualcomm because most of us know the stock's track record well and because I've held that stock the least amount of time by far. I'm eliminating EMC because I forgot to look it up and don't want to bother now. I'm bushed!) CISCO -- In the three years I've owned Cisco, it dropped nearly 40% once in 1998. I thought it should have dropped 50% many times since but it never did. So much for my ability to value Cisco, huh. The stock is selling for 9 times what I paid for it three years ago. Glad I held. CITRIX -- I bought Citrix in November, 1997. In 1998 it dropped 50% from a temporary high. In 1999 it dropped 40% from a newer high. This year it has dropped nearly 60%. I wouldn't have been able to time those drops if my life had depended on it. Now I'm glad I never tried. The stock is selling for 4 1/2 times what I bought it for 2 1/2 years ago even after it has fallen 60%. Glad I held. GEMSTAR -- In the 1 1/2 years I've owned it it fell once 35% and a second time most recently 50%. Yet it's still more than three times higher than what I paid for it. Every time I thought the stock was way overvalued, it went higher and higher. Glad I didn't try and "value" it. Glad I held. SIEBEL -- I think I know more about the industry it's in than any other industry I invest in. In the first nine months I owned the stock, it fell 30%, rose to a new high and fell 40%, rose to yet another new high and fell 50%. It fell 40% once the next year. And this year it has fallen 50%. That's FIVE times it fell anywhere from 30% to 50% in only 26 months! Yet the stock is more than 9 times my purchase price despite that it's fallen 50%. I couldn't have "valued" the stock and made all those timing moves. Glad I held. Last, even though my portfolio stands 25% lower than it's all-time high, it is more than 29 times larger than when I seriously began tracking it nearly 10 1/2 years ago. There are some brilliant people who would have done a LOT better trying to time the market. But not being brilliant, I'll take it, especially knowing I didn't spend nearly as much time at it as a market-timer would have needed to do. This is probably the last I'll discuss this subject for a long while. I don't feel I can add anything more to it than what I've discussed in the last several months. Time for someone else to hog the folder. :) --Mike Buckley

To: tekboy who wrote (24691)	5/14/2000 4:19:00 AM
From: Bruce Brown	Respond to of 54805

RE: Tekboy and timing.... Moreover, I maintain that a lot of people here do just that: hence the cash positions detected in the portfolio surveys, and the way BB and Merlin, for example, were suspiciously able to step in and pick up some bargains recently when I was being chased by Chuckie "the Nose" Schwab and his henchman Vito... I mentioned in a couple of posts how my wife and I arrived at a position in cash. A comfort zone request from my partner in life was the first reason which we reached through much discussion over the holidays. This led to the end of December sale. A longer time position we had in Dell (5 years) and a few that were held even longer were sold. Those proceeds were used to keep a cash position for the comfort zone, an investment outside of the equity markets and to buy some shares in areas around the next generation networks technology adoption life cycle. My hopes are that after taxes and the growth going forward in the new companies, the switch will have been worth it. To say that I'm confident it will have been worth it would be misleading. To say that I'm hopeful might be much more accurate. It was a calculated move that we didn't take lightly. This was more like a once every 5 or 6 year evaluation of one's holdings followed by some strategic decisions. We did the same in 1989/1990 when we moved from Houston to the Bay Area. I'm not sure this equals some of the timing/trading elements Tekboy was addressing. Keep in mind I spent 6 - 10 months looking at the IP/Broadband space and was able to buy some initial shares early last spring and in the summer. Any adding of additional shares I did recently was due to the fact that prices were equal to, or in a couple of cases, lower than prices were in the August to October time frame of last year for some of the companies I felt met my long term goals in the research. However, even with share prices of $45 - $80 per share of some of those companies as opposed to their previous highs in March/April of $180 - $300 range, the valuations are still in the highly aggressive range. No real stroke of genius, simply a little patience that might or might not pan out in the long run. The share price of Dell topped out at $55 in early 1999 and I sold those shares around the $51-53 range at the end of December. Plenty would say 'dead money' for that time frame, but considering the years leading up to that - the investment turned out to be far from 'dead' for my family. My son still retains all of his shares in his account as it matches up nicely with the balance of his portfolio. Sorry the Schwab gang was "dialing for dollars" at your residence. I'm sure it's a difficult lesson to learn, but perhaps one of more value to your investing success over the next 30 years providing the lesson prevents you from being in a similar predicament again. Remember that wealth creation takes time - lots of time. Trying to condense that process increases risk and enters into a strategy which is too far removed from investing. This can lead to other strategies that has one acting on the slightest bit of news or outside sources removed from the actual investment itself. Did anybody know that the November to March time frame was going to lead to some sell off? Did anybody know this would lead to a 'technically traded' market now? Did anybody know the FED action could create possible entry points between March and September that might be more attractive for the longer term than the months leading up to March? That's all pretty difficult to gauge. For the younger working crowd who periodically invests on a quarterly basis as new income is set aside for investment, in theory it will all pan out over the years. Whether this is a simplistic view of investing or not, as Lindy says - we've got plenty of dancing to do and life to enjoy in the meantime. No matter what we do, we cannot speed up the adaptation of CDMA, CRM, SCM, B2B, NAS, SAN, DSL, HDR, fiber, etc... as investors. We simply have to give it all time - and plenty of it. BB