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 : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: gdichaz who wrote (41710)	4/12/2001 11:29:54 AM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

Thanks for that article, Cha2, but I get the sneeking feeling that this is a set-up. :) For readers not familiar with Cha2's thinking, it's not far afield from the opinion expressed in the Fool article. I don't think that article is the best written piece by the Fool, but when we parse through the details it's certainly clear enough for us to understand its opinion in context. That context is that it is about Ruler-Maker investing, looking for dominant, cash-rich companies with strong balance sheets, brand recognition and effective cash-flow management whose business prospects merit probable holding for 30 years. There is no date on that particular piece, so I have to wonder if it is still consistent with their thinking that an investment in a Rule Maker needs to have a reasonable chance of increasing 5-fold in ten years. That criterion was added in direct response to a previous lack of concern about valuation. To put the article into perspective for Gorilla Gaming ... For me, the entire premise of the article expressed by its title is dead wrong. By titling it Quality "vs." Valuation, the implied relationship between the two is that the investor can't have both, so much so that valuation shouldn't be in the first 85 issues to evaluate. Quality and valuation are NOT mutually exclusive issues! As an example, Siebel got a serious look as a Rule Maker candidate. The quality of the company today is superior to when it was formally evaluated. A few months back, we could have purchased it when its PE was nearly 6 times its expected growth. Today we can purchase it when it's two times the analysts' consensus growth rate, even less depending on your expectation of growth. If the Rule Maker managers don't think there is a tremendous difference in the 30-year outcome of two investment portfolios, one ignoring those differences and the other taking note of them, well, they're smart enough that I know they do recognize the difference. Relative to Gorilla Gaming, the issue I believe we need to contend more and more with is that Rule Makers hope to own a stock for 30 years. As much as this LTB&H-er would love to do the same, I recognize that it's not likely. Main Street eventually offers diminishing returns even for the best of the Gorillas. And to believe that an unseating discontinuous innovation won't come along long before 30 years has past is naive in my mind. So ... We agree that quality is paramount; I wouldn't buy part of any company at any value if the quality isn't there. But there is also an extreme valuation at which I won't buy part of a company regardless of how high the quality is. --Mike Buckley