Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Don't Drink the Kool-Aid Kids -- Ignore unavailable to you. Want to Upgrade?

To: Sir Auric Goldfinger who wrote (245)	4/2/2001 11:16:47 PM
From: Stoctrash	Read Replies (1) \| Respond to of 1063

...ya wanna know the sick part.....IMO, we could still fall 50% more just to get valuations of them GG stocks back to historical levels of decent growth companies....am I crazy or is may math all fubar?? lets see..50%*2x leverage = payday!! I remember the last good down turn in the chip sector...some "penis looker" (or so I thought at the time) hedge fund shorty was telling me my high growth chip stocks were gunna go to 1-3X sales or book. I laughed and said "NFW...it was 60, it's now 30 and you're telling me it's going to the teens??? NFW!!!" ...and guess what,, he was right. AND right now,, we've got an even bigger downturn going on! Who'da thunk...

To: Sir Auric Goldfinger who wrote (245)	4/3/2001 9:39:12 AM
From: lightwave51	Read Replies (1) \| Respond to of 1063

Why the game is Flawed-They forgot to add a chapter in the book that says you can lose your ass if you LTBH in a bear market. <g>

To: Sir Auric Goldfinger who wrote (245)	4/6/2001 1:13:58 AM
From: Stoctrash	Respond to of 1063

...and you were saying,,, siliconinvestor.com April 6, 2001 Gorilla Game revisited: Valuations matter Joe Dancy, manager of the LSGI Technology Venture Fund, publisher of the LSGI Technology Market Letter members.aol.com, as well as the Lone Star Growth Investor Update members.aol.com, provides the following article. Below is his write-up. Several years ago the best-selling investment book The Gorilla Game promoted a fatally flawed investment strategy. The 1997 book advocated buying shares in giant companies with virtual monopolies, with little or no regard for the valuation of such firms. According to the authors, "gorilla" companies benefited from increasing returns and margins because their products were proprietary and the cost of switching to a competitor's products was very high, and therefore in theory these companies would only get stronger with time. One of the main problems with the book is that many companies that they considered gorillas became valued by the market at a level that assumed a generous growth rate well into the future. Yahoo, Cisco and Intel, to name a few, delivered such earnings growth for a short time period -- but with the recent economic slump it is clear that they will have difficulty maintaining these growth rates longer term. As investors realize that earnings -- and valuations -- matter, the stock prices of many of these gorillas are off well over 50 percent from their market highs. Investors also realize it is difficult to grow earnings at above-average rates for a long period of time, especially for larger capitalization firms. An incredible amount of shareholder wealth has disappeared from these companies, leading some to claim that the overall economy will be adversely impacted. Nifty Fifty Revisited? In a recent Financial Post editorial, technology analyst Wynn Quon claimed that the Gorilla Game was just a reincarnation of the "Nifty Fifty" strategy of the 1970s. Using that strategy, investors were to focus on "several dozen companies, like McDonald's and Polaroid, whose market dominance was considered so absolute that they were no-brainer investments, their shares cheap at any cost. In 1972, McDonald's sold at a P/E of 83; Polaroid at a P/E of 90. A few years later, McDonald's P/E had collapsed to 9 and Polaroid's to 16." Quon went on to say, "The '70s investors were mere pikers compared to their brethren 30 years later. Cisco sold at a P/E of over 200 and, even now, has a P/E of 60. Yahoo had a P/E of 2000 when Internet mania was at its nuttiest." Valuations Matter to Long-Term Investors The most successful long-term investors we've interviewed during the last four years look at stocks as small pieces of a business. When the business is undervalued, they buy additional shares in the enterprise, which increases the risk/reward ratio in favor of the investor in the longer term. In many cases short-term valuations generally reflect a sector or company that is out of favor or overlooked. Many of the better long-term investors look at market corrections as an opportunity to buy an interest in a company at a discount. So, in a sense, they would consider the current market correction a positive development. Will the gorilla companies lead the advance after the current market decline has run its course? Our answer is no, for several reasons. We'll address that topic next week, so tune in then. To get The Internet Financial Connection Newsletter e-mailed to you for FREE, send a blank e-mail to ifc-subscribe@topica.com. In 1998, 225 different specific stock ideas appeared in the IFC. As of July 5, 1999, the return of the group of stocks that appeared in the IFC in 1998 rose an astounding 51%. What is even more amazing is that in 1999, 185 stocks appeared in this column and as of July 3, of 2000, that group of stocks was up 56%.