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

To: Mike Buckley who wrote (39291)	2/15/2001 11:13:46 AM
From: Bruce Brown	Read Replies (2) \| Respond to of 54805

I disagree. He's not like everyone else. The only reason the listserv exists is because its supposed to serve as a discussion group of the book that he authored. If he's going to personally discuss stuff that isn't gorilla gaming, he should qualify it as such so people don't get confused or percieve a message that isn't intended. Well, yes and no. I wouldn't be so quick to address his comments as having nothing to do with gorilla gaming. The authors wrote about "understanding the stock market" in Chapter 4 in terms of the effect interest rates and tax rates have on valuations of companies as well as the concept of buyers and sellers at the front of that chapter. There were comments in that chapter about individual gorilla shortfalls creating opportunities to 'buy' more shares as the market sells off on the news. As the missed expectations of gorillas like Intel, Microsoft and Cisco have shown in the past quarter or two, we have seen the market respond in all three to the misses 'expectations'. The same can be said for younger companies that we follow. The post Geoff made was: I think we are closer to the middle than to the end of the unwinding of valuations in the tech sector. Partly this is due to the trials of the tech sector customer bases in the carrier space and previously in the dot.com space. Partly it is due to the withdrawl of the wealth effect and the chilling in the consumer mood. But I think a very large part is a change in attitude among institutional investors about valuation metrics. As I have said earlier (I think), I do not think the sector bottoms until the P/S and P/E ratios of tech stocks begin to parallel those of stocks outside the tech sector. At this point, the sector would be deeply undervalued, but until we get to this point, I do not think it will be allowed to rebound. Needlessly to say, after we pass this point, gorilla game buying is a huge win. But until then, cash is likely to be the most profitable equity on the block. Since they introduced the buyer and seller concept as well as valuations during different interest rate and taxation rate environments in chapter 4, I don't think his comments were removed from gorilla gaming and thinking about the 'understanding the stock market' which really is made up of the institutional investor being the majority. If you follow along on various message boards, the retail investor mood and consumer mood has not been one of euphoria after the past year in the equity markets. If you combine that with institutional investor sentiment about valuations, the reality is that it does have an effect on valuations. Where I agree with you is that trying to call market bottoms - be it using P/E ratios, PSR's or whatever is not exactly what gorilla gaming is about. However, stating an opinion that cash might outperform equities as the process plays out could be viewed from a couple of angles. The obvious angle would be he simply made the comment any cash you have sitting around might hold better value than equities during a period of valuation corretions is carried out. Another angle is that it was just a statement that if you have some cash, an opportunity might soon present itself to put that cash to work by buying additional shares of those hit in the shortfall process using gorilla game tactics. The last angle could be that he was suggesting to move to all cash during the process, but that's not how I read the comment. I made comments in regards to non technology metrics having already been passed in some of the companies if one looks at P/E and PEG multiples. I can't see comparing a PSR of a steel company or a grocery store to a PSR of a software company, so I can't find value in that. If the PSR's of technology companies fell to a level of 1 or 2 before the market saw any kind of 'value' in gorilla gaming - then I fear the nuclear meltdown would be far more severe than any of us could tolerate. Although the DOW and S&P have been pretty much flat since April of 1999 (almost two full years), I could easily find individual cases within plenty of non technology stocks that would make an institutional investor valuation junkie blush and adjust those issues down before any thoughts of some of the technology issues. That was my concern in regards to Geoff's valuation comments. I hope he responds to some of the questions raised in those regards. However, in part of 'understanding the stock market', investors have to realize what happens to valuations within segments that go in and out of favor during various economic cycles and sentiment changes. The same 'gurus' that are dishing tech right now are pounding the table on companies with 5 to 15% y/y revenue growth carrying P/E's in the 60 to 100 range at the moment. That's simply part of their 'business' of following the money flow wherever it goes. They promote it, push it and then move on to the next sector to promote it push it and move on to the next sector, etc... . Obviously, some equities have been outperformed by cash to date and as we move through the process of adjusting for the economic environment - perhaps institutional investors really are adjusting their valuation metrics to a different set of criteria than they were using in the 1998 to 2000 time frame. The long lasting effects of the dot.com bubble might not be so easily tossed off and if one believes in regression to the mean - who knows where valuations could end up? There certainly is no lack of evidence for the amount of distribution that took place from the institutional investors over the past 6 to 8 months as the technology stocks went down in valuation. That certainly ties in with 'understanding the stock market' because that is how it works. The reverse is true as the institutional investors accumulate shares of companies as EPS and revenues ramp up - or the perception that EPS growth and revenue growth is preparing to ramp up. An example of this would have been in Qualcomm from the $51 range beginning last summer and through the sell off since September as the shares that were distributed from the earlier mania run up bottomed, based and slowly began the accumulation process which ran to $106 before another round of distribution took place. Yet, as we have been discussing on this thread - it is really starting to appear that more ducks are in a row for Qualcomm's future that we can latch on to than in August or September of 1999. Thoughts? BB