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

To: Uncle Frank who wrote (43381)	6/11/2001 1:57:52 PM
From: EnricoPalazzo	Respond to of 54805

Are you going to make me buy the book to find out what they are? They're all things you've heard before. It's mainly just an answer for when rookies ask for a book on how to invest--I'd point them to this, then to TRFM. But since you asked, things like buy top-notch management, look for a sustainable competitive advantage, don't place too much emphasis on analysts' estimates, look for companies that look at the long-run, buy at a reasonable valuation (he gives a chart for a "reasonable" valuation given the S&P's P/E and the company's growth rate). He had an interesting rule of thumb: earnings growth regresses towards the mean by about 17.5% of the difference. So if average growth is 10%, and the company grew 50% last year, the company will probably grow 10% + (40% * 82.5%) = 43%. Whenever analysts' expectations vary widely from that, you should be cautious. The rub, of course, is that this rule doesn't hold for the great companies that he's urging us to buy (his three biggies for the nineties were Dell, MSFT, Gateway--he was late to the Cisco party). I don't really mind this contradiction--I just think of it as margin of safety. The buy top-notch management rule was an interesting one, and one that I think TRFM downplays to its peril. The book has lots of brief interviews with successful investors, and one of them said that his biggest mistake was buying three companies in 1990 with untrustworthy management. One of them was Oracle. Not bad for your biggest mistake, I thought...