Katherine and thread, I agree there is a place for "gut feel" in investing. I want to be respectful to the "buy-on-the-cheap-only" people on this thread partly because I want their inputs (e.g. want to get better at this approach), and also because I try to do the same thing to some extent as well.
The problem I think with getting too wrapped up in the numbers though is that all the numbers from Wall Street are based on all sorts of assumptions, which could end up being wrong. This is even more true when one is talking tech stocks. By definition, technology investing involves making bets on new markets that are opening up, that nobody really understands that well. And just when something seems to be understood, there is a tendency for a "killer application" or whatever to come out that turns the whole technology world upside down. As tech investors, I think we need to be comfortable being uncomfortable.
Having said that, it is true that certain areas in technology are easier to figure out, for example the semiconductor capital equipment sector and stocks like AMAT. This area seems pretty solid to me, unless something changes with regards to Moore's Law, or unless some other fundamental assumption ends up being flawed (e.g. that bandwidth will open up and the internet will keep growing, thus increasing the demand for chips).
As a numbers guy myself in a very different area, structural analysis, I would also like to add that there is a tendency to get drawn into one's own numbers approach to things, such that one can end up seeing the bark on the trees, but end up missing the view of the forest. I think intuition, gut feel, inputs from others, experience, etc. is what counteracts this. In my field we design things for static, fatigue, and thermal loads, but then we step back and just look at what we came up with for "bad details" - structure that just looks bad from a fatigue point of view or whatever, despite the numbers we ran saying it is ok. This then causes us to go back and perform a different type of analysis on the structure, and so on. There are a lot of things that interact with one another, such as geometry, stiffness and vibration, materials, thermal expansion/contraction, etc. However, it is much simpler in my opinion than the job of analyzing technology stocks. In this arena you can add in a much more uncertainty on the technology side, plus endless debates on how to approach the problem, what kind of numbers to run, what estimates about future performance are correct, and also emotion, crowd behavior, and deliberate manipulation by certain people or organizations.
I guess that is one reason I like technology stock investing. It is extremely challenging. The part about getting inputs from others is being addressed real well by online threads such as this one, in my opinion. Also, the net result of technology is to improve things for mankind. I enjoy seeing technological progress, and that is one reason why I went into engineering.
Getting back to your statement about gut feel, let me share something I read once that is very interesting. it has to do with the competition between "numbers" and intuition. Back in the late 80's I read an article that explained how the chess masters of that period were able to beat the fastest supercomputers at the time, which were running the best chess programs. The supercomputer was evaluating millions of moves, most of them horrible, and doing this one at a time but doing it extremely fast. The human opponent, however, would evaluate about 4 or 5 fantastic moves, each produced by his subconscious mind, through a thought process that is roughly equivalent to that of a "massively parallel computer". "Massively parallel" means that a huge number of problems solved at once, rather than one at a time, as in a "serial" computer. The human is slow at evaluating those final choices, but saved a huge amount of time by narrowing it down to such great moves by this "massively parallel" approach of his/her subconscious mind - "gut feel" if you will.
When "gut feel" is combined with a contrarian approach, some good numbers, some consideration of TA methods, and a good model for the future business conditions, I think a really good formula for success emerges. If one only considers valuation, it seems that one will miss out on a lot of great stocks. For example, if one was concerned about the valuation of Microsoft over the last 10 years, one would have never bought it.
Regards,
John |
