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

To: Stock Farmer who wrote (53753)	3/23/2003 2:54:46 PM
From: Thomas Mercer-Hursh	Read Replies (1) \| Respond to of 54805

Seems to me that price is the single determinant of a good investment. In other words, the difference between what one's investment is worth at sale versus what it cost at purchase. Plus any dividends in between. Everything else is irrelevant in the end. The hindsight value of an investment is the return one earned. Unfortunately, one can't make investment decisions with the benefit of hindsight. Thus, one resorts to various ways of estimating how well a company is likely to do in the future, both absolutely and with respect to its competition, believing that this will be a major determinant of price over the long run. Gorilla, King, Chimp, Prince, none of the above are ways we have at getting at that estimate.

To: Stock Farmer who wrote (53753)	3/23/2003 4:54:19 PM
From: Jurgis Bekepuris	Read Replies (2) \| Respond to of 54805

John, >Seems to me that price is the single determinant of a good investment. In the world with absolute foreknowledge, you are right. In the real world, you are not. You don't know for sure whether Gorilla is valued "at $0.98/long-term dollar" and Gorilla Shadowed company is valued at "$0.50/long-term dollar". And there may be quite high risk that you are wrong in the downside direction of the second company, because it may be dead much faster than you predict. Of course, you may be ultra-conservative, you could understand the Gorilla Shadowed company very well, and you may win buying it instead of Gorilla. I give you that. I just don't see myself capable of this game. That's why I have some rules to avoid the "traps". As I said before, for me price is not the "single determinant of a good investment". There's at least two non-quantitative determinants that come way before the price: - Circle of competence (see Buffett for explanations). I simply don't buy stocks of companies that I don't understand. And I hope that I understand the ones I buy at least a bit. - Management integrity. I try to avoid all questionable management. It's a tough job, since I don't know any of the management personally. These are there to avoid traps. And I don't see a problem of having other non-quantitative criteria in my investment process. E.g., I don't buy companies in the shadow of Gorillas. I try to buy companies with high ROE and sustainable high margins, which in the best case are G&Ks. Is my invesment approach limiting? Perhaps. There were times when there were almost no companies to invest in according to my criteria. But the same would happen even if price was the only criterion. So I don't feel limited. Jurgis