Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (2505)	6/2/2000 10:31:00 PM
From: James Clarke	Read Replies (1) \| Respond to of 4690

The thinly traded ones that you're right on go up all at once in my experience. Either they get taken over, or all of a sudden they go up 30% in a week after doing nothing for six months. And when I give up on one, it usually happens a week later. Its easy to say you've got to be patient - more importantly, you've got to be right. If you're wrong on a thinly traded stock, you're dead as an institutional investor. As an individual investor I find I can usually get out in time - its a lot easier to sell 200 shares of one of these things than 200,000.

To: Freedom Fighter who wrote (2505)	6/4/2000 5:37:00 PM
From: Shane M	Read Replies (3) \| Respond to of 4690

Wayne, I don't have alot of experience with the microcap stuff and have grown to appreciate a mktcap of at least $500mil or so, so don't put too much weight on my experience with the microcap end of the spectrum. For an example: My most recent experience of the above is Central Parking, CPC, and at around avg day of 50,000 shares per day I consider that "thinly traded" for my portfolio. It just moved about 30% for no reason I can discern other than it seemed like it ought to be worth more. Shane

To: Freedom Fighter who wrote (2505)	6/13/2000 12:07:00 PM
From: Brendan O'Connor	Read Replies (3) \| Respond to of 4690

Wayne and Shane, The question of how long it takes for the market to recognize value is a very important one, especially for small investors. The problem, as you point out, is that there is little predictability regarding when Mr. Market will recognize the value in a company and raise the price accordingly. I believe there are two possible solutions: 1) diversify widely enough (40-50 stocks, minimum) so that the average time for your stocks to reach fair value is about the same as the value-stock universe, or 2) buy only value stocks whose intrinsic value is growing at a rate high enough so that you don't mind holding virtually forever. I believe I'm correct in saying that Buffett started out doing (1), which is more Graham-like, he has evolved more into (2), which is more Fisher-like. I also have evolved more towards (2) over the years for the following reasons: -- easier for the individual with limited research time to follow a few stocks and hold for long periods -- tax deferral advantages of holding for long periods -- lower trading costs -- fewer mistakes because research on each stock tends to be more thorough I'm sure there are more advantages that don't come to mind right now. Institutions with large research organizations have the option of using either strategy. These two strategies can be seen at work in four mutual funds that I follow. Mutual Series (MQIFX, MDISX, etc.) has taken the Graham-like highly-diversified approach while putting little emphasis on intrinsic value growth rates. Sequoia and Tweedy-Browne have taken the Fisher/Buffett approach of buying a few good companies with predictable growth at low prices and holding virtually forever. I also follow Longleaf Partners, which seems to take a middle road between these two. They hold 25-35 stocks vs. Mutual Series' 50-150 and Sequoia/Tweedy-Browne's 10-20. They pay attention to management quality and intrinsic value growth, but buy companies with second- and third-rate management quality and economics whereas Sequoia/Tweedy-Browne tend to buy only companies with first-rate (and sometimes second-rate) management and economics. Mutual Series will go pretty low on the quality scale in search of value. Of the three approaches, I've been most concerned about the predictability of long-term returns for Longleaf. I wonder if they've got the right balance of predictable intrinsic value growth and diversification. I believe the record shows that their short- and medium-term returns are more volatile than the other three. I'm sure that there's not enough data to make a good statistically-based judgement about the predictability of their long-term returns vs. the others. Brendan