Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Bruce Brown who wrote (48872)	11/14/2001 6:44:35 AM
From: chaz	Read Replies (1) \| Respond to of 54805

Bruce-- That was a very fine post...one of your better ones I think. We all should read it twice at least. Chaz

To: Bruce Brown who wrote (48872)	11/14/2001 8:32:34 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 54805

It is interesting to ponder the thought that sometimes at trough earnings when doubt is at peak levels, multiples reach new heights in anticipation of an earnings recovery but this would not be expected of PSRs, for example, if stocks are a "bargain". if the "E" in PE approaches zero, it is likely that the PE will be high. however, that must be compared against other valuation measures. in the early 1930s, PEs were high but PSRs were exceedingly low and the market still paid substantial dividends. as for "this time", i do not think doubt can be considered at peak levels given the PSRs obtaining today, not to mention the PEs of some of the less volatile earners. How about the strength of certain value chains and category leaders? Will Dell, EMC, Microsoft, Intel, Applied Materials, Siebel, IBM, etc... survive? this is similar to the Nifty Fifty argument--find a company that will "survive" due to its strong market position. sure, survival is nice, even necessary. but it is not also sufficient to ensure good returns. Value players would have been focused on small-cap tech over the past three months where gains have far outpaced the large caps and market multiples were quite a "bargain" yes, that is because the small companies are more likely to go out of business. of the various equity categories identified by Fama and French, the worst performer over time has been small growth. this is likely due to its being expensive (growth) without being sure of survival (small). in contrast, large growth is expensive and thus has poor expected returns, but it is large and thus likely to survive. if companies you refer to were true value stocks, well, they fall into the best historical category according to FF--small value, which outperformed other categories adjusted for risk. Nifty Fifty in aggregate, purchased at their heyday multiple heights and held through to today have beaten the S&P. as long as you didn't mind severely underperforming small value and commodities, throughout the rest of the 70s, and underperforming equity markets as a whole (as well as bond markets) for more than two decades. this length of time starts to approach the realistic investment time horizon for many investors. not to say one shouldn't hold such stocks, but holding them alone can be quite risky as i have mentioned before. also, it is worth mentioning that the Nifty 50 were much cheaper than modern large growth companies. What really would have impressed me would have been for them to say they loaded up on shares of all of those near their lows as they saw value. Did they buy Microsoft at $40, Intel at $18, Cisco at $11, Dell at $16, Siebel at $12, Brocade at $12, IBM at $80, etc...? No way. i don't really want the job of defending them--i'd rather just discuss the issues, but i will mention that one of their funds is up some 29% this year compared to double-digit losses for most equity indexes, and 32% loss for the NDX100. as i mentioned to uf, valuation tools are not market timing tools. also, before i forget, that article is just a daily blurb they put up. there's a new one each market day after the close. their philosophy is described in much greater deal on their website under the article "LIMBO LIMBO, HOW LOW CAN IT GO?" located on the right side of the home page, although this URL might take you there directly: comstockfunds.com

To: Bruce Brown who wrote (48872)	11/14/2001 12:23:06 PM
From: Pirah Naman	Read Replies (1) \| Respond to of 54805

The Nifty Fifty in aggregate,* purchased at their heyday multiple heights and held through to today have beaten the S&P.* Yes, in aggregate this is true. Not by a large enough margin that many would consider it a winning strategy to emulate, especially given the long periods of underperformance. And very probably "cherry picking" from them and holding would not have resulted in beating the overall market. Take a peek at the tech stocks of that group, some of them mentioned in TFM even, and see how those fared. That way at least there would be some reasonable analogy, not that analogy is a good guide. If we are to look at historical multiples - and bear in mind, I'm not a fan of "multiples" and I'm not staking any ground on any valuations here - it should be to think about our expectations and how self-consistent we are. i.e., just look only at CSCO, INTC, MSFT, and ORCL. Answer two questions about each: 1) will the business do better, in terms of growth and profitability, in the next decade than it did in the past decade? 2) is there greater certainty that the business will be successful over the next decade than it was over the past decade? Having answered those, we are in a position to rationally discuss the set of multiples currently applied to these business, compare them to their past sets of those same multiples, and think about what is implied for future returns and if we are being self-consistent in our thinking. - Pirah