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

To: Wyätt Gwyön who wrote (35007)	11/18/2000 12:06:27 PM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

Mucho Maas, Thanks for the time-consuming, detailed response. I wrote: We try not to lay claim to understanding the pros and cons of a company more than the next person because in the end, it doesn't matter what the next person understands You responded: I sense you're becoming a bit fatalistic here. If you really think you can not understand anything more than the next person, then your odds of beating the market are a crap shoot. But obviously, you are trying to understand something or you wouldn't spend so much time publishing well-wrought studies of "front-office games" and so on,... You're right that I try to understand as much as I'm reasonably capable of understanding. The issue is that I emphasize that here on the thread we try not to "lay claim" to understanding a company more than the next guy. It really doesn't matter whether or not Person A understands a company more than Person B. What matters, as you say, is that each of us tries to understand as much as we can. --Mike Buckley

To: Wyätt Gwyön who wrote (35007)	11/18/2000 3:29:13 PM
From: Thomas Mercer-Hursh	Respond to of 54805

I would point out here that you are talking about an understanding of the company's products, which obviously vary from one industry to the next. In contrast, all public companies produce financial statements that are required to follow certain guidelines (e.g., GAAP), so an effort to gain an understanding such statements (i.e., a time "investment") can be leveraged across the entire spectrum of public investment prospects Before discovering G&K I used to make closer scrutiny of financial statements than I do now ... the forces associated with a gorilla are far more powerful than will ever be will reflected in a snapshot financial statement. But, I think it is important to realize that all GAAP does is to provide a set of rules about how a business represents the facts of it financial condition on paper ... moreover, it is a specification only for the US and other countries have their own rules which sometimes vary in significant ways ... the LHSP debacle is good demonstration of that. But, the numbers on the paper mean relatively little without drilling down through those numbers to understand where they come from in the underlying business. When a business is growing rapidly or changing in composition, some rather dramatic changes can be expected to occur in the financial statements, some of which might seem like negative signs unless one understood the source. QCOM, for example, in it progressive divestiture of anything but the IP component of its core business can be expected to have financial statements which will change radically in profile over a relatively short period -- whether those changes look good or bad on the surface, they really mean nothing unless tied back to that understanding in the changes of the business. While Cisco is not undergoing quite as fundamental a shift as that, the nature of its business is quite dynamic as emphasis and sectors shift and mature. If one was looking at General Motors, then a shift in inventory level might well be a significant indicator, but I would be very hesitant to make that same kind of judgement of Cisco without exploring deeper, where, as was pointed out, one finds that it was a what seems a reasonable and prudent business response to earlier supply problems. I believe accounting is something that should not be ignored. The rules of reporting in SEC filings are supposed to simplify things for the average investor so that you can understand what a co. is doing without being a CPA or writing your PhD thesis on "History of Cisco". But in fact, we find it is rather confusing, because cos. are constantly restating this figure or that without presenting notice in later reports. Actually, I believe SEC reporting rules are intended more to insure the fairness and uniformity of reporting than they are intended to simplifying things for the investor. How often, for example, have you looked at a companies earnings and felt that the important thing one would like to know was the breakdown in earnings between old and new product or some such, but that breakdown is not reported. There are many key pieces of information like this which companies are not required to report and frequently choose not to, even though knowing them would assist investors greatly in understanding the real state of the company. As for restating figures, I am not sure what you are alluding to, but there are rules about doing that as well. The unfortunate fact of the matter is that the underlying business "facts" behind these figures are often very complex, not the least of all in the case of mergers. Given complete drill down capability, one might be able to obtain a reasonable understanding, but limited to the facts in a 10Q or 10K, there is often a lot that is not clear ... and not because someone is attempting to obscure something, but rather simply because it is a simple representation of something complex.