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

To: Gary105 who wrote (45953)	8/29/2001 1:59:43 AM
From: Seeker of Truth	Respond to of 54805

That's very appealing. The arithmetic is surely fast! We should use cash flow rather than earnings. This has at least one advantage which is that we wait until the customer pays. There seems always something phony about crediting the company with income when we can't use the "income" to pay employees. Anyway, converting to cash flow we still have a quite simple system. I suppose a good price to buy would be, let's say 60% of your number, twice the growth rate. That would be 1.2 times the growth rate. Then you might be forced to sell if the stock ever reached a P/E of 3 times the expected growth rate. The numbers are fairly arbitrary. Anyway if one rigorously used such a system it might not be optimal but it would be far far better than using some hunches such as: "the stock has been as high as 85 and I haven't seen it lower than 60 for a long time so it must be a sensational buy at 48!" Or: "I've already doubled my money in the stock this year, I think I'll sell it. You never go broke taking a profit." By the way though I like the simplicity of the "twice the growth rate" method, it does not take into account a very important factor, that is, interest rates. Cash equivalents are always competing with stocks. At today's interest rates, they don't compete well;stocks look better. But there are times when the yield of cash is so high that new money flows there and not too much to the stock market. Then stocks drop.