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

To: Wyätt Gwyön who wrote (48408)	10/28/2001 4:46:00 AM
From: Bruce Brown	Read Replies (1) \| Respond to of 54805

what prickled my pear was the quote from the book saying cos (all cos? just "new economy cos"? just cos who hire certain consulting firms fond of animal metaphors?)...saying that cos are now (or perhaps should be?) focused on their market cap (i.e., share price) as opposed to profitability. this "trend" is put in the same pantheon as other tongue-ticklers such as "From Assets (atoms) to Information (bits)". I believe the 'theory' behind that was centered around companies being able to use their stock as currency to acquire and flex their muscle. The reasoning being that if one's currency dwindled as opposed to a competitor in the same "game" or space, then an advantage was lost which could prevent the ability to use one's currency to acquire or at least have the options to expand using their currency. I guess that's all nice in theory if the eventual end run is that more market share and competitive posturing is the end result which eventually ends up in creating shareholder value as profits increase down the road. However, all we have to do is comb through the wreckage of multi-billion dollar acquisitions in technology that were purchased at high prices during the past couple of years with this stock currency and witness some of the results being posted now by companies such as i2, JDS Uniphase, Cisco, VeriSign, AOL and many others that used currency of stock to acquire. The "theory" is not limited to technology as the ability to flex muscle in other industries to compete for category leader or number two remains part of the game. Probably the best recipient of a deal was the former Broadcast.com partner who used his chunk of change received to purchase the tangible Dallas Mavericks. I have no idea what owning a professional basketball franchise means in terms of profits/losses, but I would imagine that it is a business with staying power that has the opportunity - if run well - to create return for the owner. There are other technology companies with important technologies that have, by design, avoided using the stock currency method of creating share holder value in favor of developing and growing from within. That's not to say their 'currency' shot to the moon and back along with everyone else, but time will tell how they fare going forward and how profits build. Plenty of issues surrounding stock options and dilution to keep one busy. getting back to your point, Bruce, a stock price at any moment represents a supply/demand outcome. like fashions, it can vary widely and does not necessarily stay in keeping with profitability (actualized or potential) over the short term. but ostensibly, stocks over the long run will be priced according to their profitability, with some margin (perhaps large) for error over short periods. I was pointing out that plenty of market participants participate in the periods of "fashion" and log profits doing so on the way up and the way down. That's not to say that this means that game has anything to do with only purchasing stocks that are priced "over the long run according to their profitability". Reality is that the "fashion game" exists and there are ways to turn profits trading those trends - regardless of one's opinions on the tulip and bubble issues aside. In the past 30 years, there were 'fashion trends' of oil related stocks, biotechnology (twice), technology, internet, current security/defense 'fashion' game and most likely some others that I am overlooking. In the future there will be many more. therefore, profitability is the horse that by rights should lead the price horse over the long run. it is bassackwards for cos to focus on short-term share price momentum at the expense of long-term profitability. that was my quibble. I am going to agree with your quibble - with the stipulation that in the face of the market, it is not the only race being played where participants can participate. Of course, a company that has a strong currency via their stock due to their profitability remains an enticing investment. At times it appears that technology companies only confine themselves to 100 meter, 200 meter and other short term races compared to companies outside of technology that might be running 10K, 20K and marathon races. Although they are all races that eventually require profitability, it isn't the same kind of runner that participates in each of those distances. BB

To: Wyätt Gwyön who wrote (48408)	10/28/2001 5:55:15 PM
From: Seeker of Truth	Read Replies (2) \| Respond to of 54805

The G & K thread has always stressed profits. Never have we considered an unprofitable company to be a gorilla. Now we have even refined that to emphasize cash flow. The fallacious opinion that you are correctly attacking, i.e. that share price is the most important thing, has never to my knowledge been advanced on this thread. It certainly would be disputed hotly, were it expressed. So you are preaching to the sinless.