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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: LauA who wrote (14194)	3/29/2002 5:00:44 PM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 78729

LauA, >Is there a ceiling? Is a very important question. When people realized that there is a ceiling for some technology companies, they got beaten down much more than MRK and co. are now. And I am not talking about dot bombs. I am talking about EMCs and CSCOs that had margins similar to pharmas in their heyday. If you looked at CSCOs ROE history, you would see that trouble started much earlier than 2000-2001 crash. It started with ROE dropping from 30s to 20s in 1997! If similar situation occurs to pharmas, only one shoe has dropped yet. Of course, pharmas will not have to write down $1B of inventory, nor they will have 40% drop in revenue (maybe?). However, they are still priced for ~30% ROE, which may be a good assumption or may be not. Jurgis - it may be different for pharmas...and I am somewhat long... but mostly waiting

To: LauA who wrote (14194)	3/31/2002 6:24:56 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 78729

sure, great investments come rarely. ----Keep taking pitches because you only have 20 swings. Buffett is surely famous for his aphorism that "there are no called strikes in investing." but what about 20 swings? there is a school of thought that positions should be concentrated because one should have "faith" in one's positions and also one can't really know well a huge number of positions...this is the sort of argument Mason Hawkins makes. (recently he said in OID that most of the diversification benefit comes from just 12 positions). other OID regulars call for even fewer positions, and i think Buffett is on the record saying he made his career on like 5 stocks or something (although BRK is effectively around 100 positions). while there are academic reasons people argue for diversification effects out of just a few positions, i believe there are other considerations. i personally have become more comfortable with the idea of 75 to 100 positions. part of my rationale here is that this permits a greater degree of asset-class diversification--in addition to owning a variety of individual issues (diversifying nonsystemic risk), one can own a variety of asset classes and also spread the bets around different countries. that is just a personal preference. there is another argument (really an indexing argument) against owning a small number of positions: terminal wealth dispersion (TWD). it is discussed in the following article. The 15-Stock Diversification Myth efficientfrontier.com