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

To: Jurgis Bekepuris who wrote (53764)	3/23/2003 5:46:14 PM
From: gdichaz	Read Replies (1) \| Respond to of 54805

Jurgis: Since my first post to you was not clear in its intended meaning (my fault) I do this with hope of avoiding misunderstanding, so despite that risk, since I agree so strongly I will venture a couple of ideas here. I come to investing with a background in analysis and management with training in economics and experience in tax, fiscal policy, international trade and development both in theory and practice. Therefore I thought I had a leg up in the way of a broad analysis needed for the "setting". I then undertook to try to learn what I could about various technologies with an idea of knowing what I could to make rational choices among and within technologies. In 1990 when I had full time available I thought networking was a good place to concentrate initially. So Cisco was in my basket. I then moved over a couple of years to put more emphasis on Cisco. That was successful. I had never heard of the Gorilla Game of course, yet I found in retrospect that I had been at least en parte using similar ideas. Over time I found networking too narrow for my field, so I investigated telecom and decided to examine wireless and wire (fiber) as areas for learning. I only found one gorilla - Qualcomm. I thought I had found one King - Uniphase (to become JDSU or JDS Uniphase). Both did well for a while so my base is relatively small in dollar terms now and the market value of one is much greater - that clearly is Qualcomm. Cisco was my source of investment funds (along with some less successful investments along the way). Early on I used Peter Lynch as a guideline and understand from that that equities are a good area for long term investment mixed with real estate. Having tried to quantify quality (establish quantitative proxies for quality) on a serious basis, I found that extremely difficult and not reliable. Quality to me (defined as best it can be) is key. Therefore any way to zero in on quality is useful IMO. In my experience some of the ideas set forth in the GG are useful in that - not controlling, but useful. Risk tolerance and sleeping at night are essentials also. A mix of criterea makes sense to me. Enough. Hope this is useful to a few here. Just my views based on my own experience. Everyone has a different set of personal circumstances, goals, and resources, so no cookie cutter approach is valid as such. I consider the GG useful, but IMO it is not in itself sufficient for optimum broad based long term investing. Best. Cha2

To: Jurgis Bekepuris who wrote (53764)	3/24/2003 2:26:59 PM
From: Stock Farmer	Respond to of 54805

Does not require foreknowledge Jurgis. History will tell us exactly what our profits were. And they will be no more and no less than the difference between buy price and sell price. The sole determinant! What we are all about in investing is maximizing the probable difference between exit and entry price. I agree with you that we can not have perfect foreknowledge. We have to estimate. When we decide to take a position, there is only one estimate worthwhile: the sell price in the future, plus any dividends along the way. Estimating anything else might be more tactile, might be easier, might be fun to describe to your neighbor... And less prone to error. Who could doubt that MSFT is a gorilla, so one can trumpet such an assertion at cocktail parties and fan one's peacock feathers as being a knowledgeable investor (er, user of Moore's lexicon) without any personal risk whatsoever. Very compelling. But beyond social elements of such a process, any estimating factor is irrelevant to the process of investing unless it bears on estimating the sell price in the future, relative to the buy price today. And despite protestations to the opposite, Moore's lexicon has precious little to do with investing, per se. It has a great deal to do with characterizing the underlying company, but that is where the disconnect begins. The sole metric of a "good" investment is how much one earns in profit. If we are estimating things that we do not translate into this metric, we are wasting our time. Might be wasting it in public, and in socially acceptable ways, but it would still be wasting time. A financial instrument (share) is NOT directly coupled to the financial aspects (business) of the underlying executing environment (market/technology). Moore's methodologies characterize the last element in this chain, and then only partially. Starting from this partial perspective and working backwards risks putting cart before horse. Example. A financial instrument spitting out a guaranteed $0.05 quarterly dividend forever is worth about $4 or so, and a financial instrument selling for 10x what it would currently be worth is obviously being priced as though there's 10x where that comes from sometime in the future. Guaranteed: e.g. a decade of growth at 26% p/a, or 5 years at 58% p/a growth, and so on. And then some to make up for having to wait. It is one thing to say "gorillaness gives us growth advantage" (a qualitative statement), but it's another thing entirely to say "the gorillaness we see is worth 26% p/a growth for 15 years and although the company is priced as though it will entertain a decades's growth at 26%, it is therefore priced at a discount to expected value and will give me a 15 year return on investment of 9.9% p/a. Or other such quantitative statements. What we have here is qualitative assessment masquerading as quantitative analysis. For example, it is quite possible that the gorillaness gives tremendous growth advantage (qualitative), and still have the financial instrument suck relative to alternatives (quantitative). 15% for a decade, for example, is "tremendous" growth for a mature company to maintain. Too bad about the investment potential if the company's financial counterpart (the share) is priced for 25% growth. Other arguments are less directly flawed. For example the assertion that "understanding companies" is the key watchword in investment, and that it's better to invest in companies that you understand. I fully agree with this point. Or at least, that it is unwise to invest in companies one does not understand. However, there is a trap in this too. By selecting Gorilla first and other factors second, many risk falling into the knowledge trap: I invest in what I know, I know only what I investigate, I investigate Gorillas, therefore I invest in Gorillas. One could end up selecting the tallest trees from amongst a bonsai garden. From a financial instrument perspective. And then there is the mistaken view that understanding if whether and how a company is a Gorilla is an understanding of the business (how they generate increased shareholder equity) versus their position in the market that they serve. Many of the "gorillas" followed avidly on this thread are first and foremost towering pyramid schemes masquerading as technology powerhouses. From a business perspective. What better way to pull this off if people are looking only at the technology and not at the business. With his best-seller, Moore did a tremendous [even if unintentional] service to VCs, investment banks and insiders. At least, temporarily. Of course, I'm not telling you things you do not know. You suggest at the moment that Gorillas are overpriced and that you will buy them if their share prices fall to within range. I believe similarly. You and me, and many others, we are clearly applying price metrics. This whole debate started when I suggested to someone that a 12-bagger didn't make a company a gorilla, and (b) that this thread is about Gorillas and kings, not profitable investments and that the two are separate things. Interesting we can start from our agreement (gorillas are overpriced) and argue (a) or (b). John.