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

To: Tom Chwojko-Frank who wrote (45048)	7/31/2001 8:39:17 PM
From: tinkershaw	Respond to of 54805

I wonder if there's some statistcal analysis one could do about how many investors (as opposed to traders) don't go beyond the reported earnings number (pro forma or otherwise), and what effect that has on the short term stock supply/demand? The studies I saw while getting my MBA at Duke indicated that P/E on any basic, did not correlate well with price fluctuations of stock. But that calculations based upon the much more sophisticated use free cash flow were positively and materially correlated with the changes in stock price. Meaning, basically, that the market as whole, is more rational than people give it credit for. And fundamentals do matter, except that in times of extreme circumstances (such as an asset bubble caused by a frenzy and cheap money pumped out by the Fed or a an enormous and rapid asset depreciation caused by the Fed slamming the brakes and rising fuel prices, and a gradual return to normal from frenzy behavior) create odd, and historically abberational results. If your in the market for the long-term, the study should give you confidence in fundamental valuation analysis as well as Gorilla analysis. Because being a gorilla, and the increasing CAP and GAP, do change the underlying numbers that make up the fundamental valuations of a company, and do so in a very positive manner. The major aspects are FCF, ROIC, growth, duration of competitive advantage, and discount rate to apply to this stream of cash. Gorillas inherently have higher ROIC, growth, length of sustainable advantage, and lower discount rates due to much more certain and solid competitive positioning. But then again, the gorilla theory is based upon financial analysis that Paul Johnson conducted that came to these same conclusions. Although I do think that even Mr. Johnson got a tad bit carried away in the frenzy and forgot the financial underpinnings of the game during 1999 and 2000 when he was recommending Juniper at a $50 billion marketcap. Yes, the market opportunity may eventually be that large (almost certainly) but time is your enemy in valuations and Mr. Johnson forgot about these. If he can, as a professional, we can all be forgiven from time to time for doing the same. Tinker Hopefully having matured much after coming up in the markets during 1999 and see the glories of the highs and the despair of the lows. But still standing, chastened, and ready for more.