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

To: Bruce Brown who wrote (35803)	12/1/2000 7:33:10 AM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

Bruce, I'm glad you brought up Coca Cola as an example. Over in the Fool's Rule Maker portfolio managed by Tom Gardner and his gang, they bought KO in early 1998. They used all sorts of quantitative metrics as stock-selection criteria, but they didn't include valuation until just a month or so ago. As a result, they bought Coke near a high when the market had been growing the price of the stock so irrationally that for a very long time there had been a major disconnect between the price of the stock and the performance of the company. I realize that there's one heck of a lot of value to the brand name, "Coke," that isn't reflected in any valuation metric. But there becomes a point that when the disconnect between the performance of the company and the stock becomes as wide as Coke's did, an investor has to wonder why the so-called value of the brand reflected in the price of the stock isn't also reflected in the performance of the company. Close scrutiny of a valuation metric would have, in the very least, offered a red flag that would have begged the question, "Is the brand name really worth that much?" I suspect that the reason the red flag was never raised is because they didn't pay enough attention to valuation in the decision-making process before adding Coke to the portfolio. In the nearly three years since they bought the stock, it has fallen 9% while the S&P 500 has increased 26%. And the really sad part of the story is that the Fool is the company that taught me 99% of what I know about valuation. That's because way back in 1995, it was important to them at the time. I have no idea why in the world it fell out of favor at Fool HQ. --Mike Buckley