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

To: tekboy who wrote (27553)	7/9/2000 10:34:39 PM
From: Jacob Snyder	Respond to of 54805

re: using valuation metrics to time the market: I don't deliberately time the market. I have a short list of companies that I have studied thoroughly, and will invest in, when they are available at or below my "fair value" range. When I buy, I also decide what the extreme high end of the justifiable valuation range is. When it gets there, I sell. It's more complicated than that, because I usually buy and sell in increments (I don't think I'm smart enough to get the exact tops or bottoms, and I like to hold something back for when valuations get even more extreme). Sometimes I'll first buy the stock, and then switch the money into LEAPs if the stock gets even more undervalued. It ends up being market timing, however, because sometimes there are lots of stocks way below fair value (Fall 1998), so I use up all my cash, use margin, and buy out-of-the-money LEAPs. Other times, stock after stock I hold gets sold, and I can't find anything to put the money into, so I just patiently hold cash. That's why I was mostly cash for the first 6 months of this year. The hardest part of this strategy is the emotional part. I have to ignore prevailing sentiment, and buy when the stock is hated, and keep buying as far down as it goes. Then, I have to sell when every piece of news is positive, about the company, industry, and market. Frequently, I guess wrong, and get out far below the top. Especially in the last couple of years, I've done an excellent job picking stocks and buy-in prices. Then, I sell after a large run-up, with a large profit............. and the stock continues going up. My sell decisions have been very poor. I would be a lot richer if I had simply never sold anything. For instance, I bought CSCO in April 1997, and sold it in May 1999. I had a 6-bagger in 2 years (the EPS doubled, and the PE tripled), but I'd have done a lot better if I was still holding those shares. Similar stories with AMAT (held 9/98 to 1/00), and INTC (held 5/98 to 1/00). Over 4 years (1996-1999) my wife and I saved 350K out of our salaries, and put it all into stocks. Starting from a net worth of zero in 1995, and after taking out 100K for house downpayment and a car, as of today we have 1.9M. I had better than 100% returns in 1997, 1998, and 1999. I'm up 12% so far in 2000. I post all my trades, when I make them, with my reasoning, on the SI thread for that stock, or the YHOO thread if there is no active SI thread. This keeps me honest, and allows other people to educate me by pointing out the idiotic things I occasionally do (and then not letting me forget, by reminding me, sometimes for years).

To: tekboy who wrote (27553)	7/9/2000 11:45:41 PM
From: tinkershaw	Read Replies (1) \| Respond to of 54805

If it is not too intrusive, I'm curious as to how successful you have been on balance in your investments over the years, and whether you have, in fact, found it possible to use valuation metrics to time the market successfully. Tekboy, not addressed to me but this is exactly the sort of thing I find myself doing. Whenever I get comfortable owning what I own say CREE, NTAP, GMST, et al some other superstar always crashes or some other opportunity always arises. I have found that trading on the margins and market timing does not work but that JUMPING ON COMPELLING OPPORTUNITIES works wonders. E.G. RMBS (discussed to death), BRCM at $115 last month (or thereabouts), Q at $56 (now), GMST in the 30s a few weeks back, etc. My key has been to stick to the best companies, never buy anything I would not want to hold for the long-term, and plan to actually hold for the long-term, but allow the flexibility to adjust as COMPELLING OPPORTUNITY presents itself. To me a compelling opportunity either consists of either a (1) FUDdded to death superstar stock with no change in fundamentals or (2) a superstar stock that is a victim of market sentiment. In all cases the superstar stock must be in or foreseeable about to enter hyper-growth, be the dominant player in its sphere, have huge market opportunity, and have a large sustainable advantage. Ie, Gorilla and King qualities. While I don't have years and years of history as of today I have two ten baggers in the last year and one 7 bagger. The two ten baggers include RMBS (via LEAPS) and BRCM via buying it very low, then buying it even lower via LEAPS and then just buying a truckload with all these earnings when it goes very low again. The 7 bagger is NTAP. I'm looking for Q to give me a ten bagger. Q gave me a 6 bagger which I traded for RMBS, which I cashed out when it hit the $300 and $400 range for the first time. Now Q is presenting a very compelling opportunity. None of these moves have been "sure things" but they were all extremely good risk/reward manuevers. I guess you'd call it "trading" but it was all done with a long-term hold mentality, using G&K fundamentals, and just jumping on compelling opportunity as it came. As of now the stocks I have not considered ever trading away are CREE, GMST, and NTAP. BRCM is now being added to that portion and if I'm able to get a truckload of Q in the morn (still working out the details as I have to sell something else to get some) it too will join that crowd. Leaving me with only 1 stock that I would consider trading (as I only own 6). Thus to answer your question, trading on the margins of my portfolio has been the most profitable thing I have done, and it has been bolstered by my core portfolio which I seldom do anything with. Tinker tekboy/Ares@enquiringmindswanttoknow.com