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

To: Larry S. who wrote (40519)	3/17/2001 10:08:07 AM
From: Apollo	Respond to of 54805

Could today's Gorillas suffer the same fate as the nifty fifty? Good question. One big difference is liquidity and pools of investing dollars. IOWs, there's a lot more money, foreign and domestic, private and public, chasing todays tech stocks in the USA in 2001, than there likely was in 1970. In 1970, the middle classes, the unions, the lower classes did not have IRAs, 401Ks, and the sense of needing to fund one's own retirement. So the amount of dollars available to propel the good companies, I think, is far greater. Also, it seems to me as a tenth-grader, in 1970, the US was still manufacturing based. In 2001, it is service, finance and technology-based, making tech companies that much more central and dominant. Just some random thoughts.... apollo

To: Larry S. who wrote (40519)	3/17/2001 10:20:36 AM
From: Mike Buckley	Respond to of 54805

Larry, I've never bought into the idea that the Gorillas of today will suffer the same consequences as the Nifty Fifty of the 70s. If they do suffer the same consequences, it won't be for the same reason and that's very, very important. There are primary difference between Gorillas and the Nifty Fifty. The the latter operated in a world of rampant inflation for nearly a decade; inflation is well controlled (maybe too much?) for Gorillas these days. The Nifty Fifty didn't have the sustainable, competitive advantage that Gorillas have (my opinion). Many of the companies in the Nifty Fifty didn't dominate their industry to the extent that Gorillas do. The fact that most of the international drug companies were in the Nifty Fifty shows that stock selection for the Nifty Fifty wasn't as selective as Gorilla Gaming which identifies only one Gorilla per industry. If Gorillas remain well below their highs for years or never attain their highs, it will be because enough of the most visible ones have waltzed down Main Street far enough that their growth is too limited to easily attain those highs. If that proves to be the case, it will be undoubtedly misunderstood by the financial press and the overwhelming majority of the investing public, making it more important than ever for astute investors to be highly selective in choosing younger Gorillas and Gorilla candidates. --Mike Buckley

To: Larry S. who wrote (40519)	3/17/2001 1:49:35 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 54805

re: Could today's Gorillas suffer the same fate as the nifty fifty? Excellent question, and one we must constantly be on guard for. 1. The "nifty 50" era was followed by a Secular Bear Market, with a generation-long period of inflation, high interest rates, high unemployment, and a decline of U.S. industry in the world economy. I don't think we are facing that, today. I don't see any return to 20% mortgage rates. I see a 1973-type recession at worst, and a 1990-type (very mild recession) at best. And, either way, a return to the bull market afterward. That's the range of possible futures for 2001-2, IMO. 2. The "Gorillas" are a heterogeneous group. You listed QCOM, EMC, CSCO, MSFT. Some of these companies are in markets that are maturing, and growth is slowing (MSFT?). Some may face Disruptive Innovations that destroy their Gorilla status (EMC?). Some are large dominant companies that still have a lot of growth in front of them (CSCO?). Some are smaller companies who don't yet dominate their industries, and whose growth and profits are almost all in front of them (QCOM?, and how far in the future are those profits?). NTAP, if it becomes a Gorilla, is not in danger of becoming a IBM, for at least 20 years. There are certainly going to be companies that go the way of IBM and XEROX, among the companies discussed on this thread. So, you can't simply buy them and forget them. You have to follow them, and sell when they look to be losing Gorilla status. 3. I would agree, that the valuations seen in 1999 and 2000, were unsupported by the fundamentals. They were based on momentum money piling in, and now it is piling out. QCOM reached 200, based on buying by investors who bought because the stock was going up, and many of them had only a very vague idea of what the company does. And many of them couldn't define P/CF or gross margin. When a stock goes up because those type of investors are buying, it will all be given back. 4. Even for those Gorillas who continue to gain most of the available profits in rapidly growing industries, it may take several years to regain their peak Bubble stock prices, and we may never again see those PE and P/S ratios again, not in our lifetimes. So, in addition to selling when a company loses Gorilla status, I would also advocate selling when the stock price reaches the extreme high end of what can be justified based on the fundamentals. This stock price, of course, is only clear in retrospect, so you have to guess. And, to keep from being swept away by the prevalent euphoria, it helps to have valuation yardsticks that you decide well in advance, and stick to. There are various: don't hold any PE >100, any P/S >6, any PEG > 3, many others, and they have to be applied on a company-by-company basis.