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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (11341)	9/1/2003 1:46:58 PM
From: Sam Citron	Read Replies (1) \| Respond to of 95888

Quality has outperformed on the move to the bottom. When the market hits bottom and starts its recovery, the lesser quality companies, which were driven down the most, initially, rebound the most. That is where we are now. Next, stock performance more closely mirrors business performance and quality retakes the lead. It sounds quite logical. Shall we backtest it empirically over the last complete semiequip cycle from July '96 bottom to October '98 bottom? When I do so with interactive charts in bigcharts.com and specify AMAT as a proxy for "quality" and KLIC as a proxy for "lesser quality", the results do not quite bear out your hypothesis, however. Instead KLIC outperformed by a slight margin all the way to the peak in September '97 (220% gain v 180% gain for AMAT) but then lost much more of its value than AMAT from peak to trough. I wish I could point you to the interactive chart in bigcharts, but the web site doesn't allow it. I have not yet tested it on other cycles, but at least on this one you would have been better off buying the lesser quality name from bottom to top and then being out of the market from top to bottom. Perhaps it is because of the impossibility of contemporaneously knowing what is the top and the bottom that an AMAT only LT bet becomes the more profitable choice. In fact, I tested this by going back and testing the period from Jan '97 to April '99 to take into account a 6 month recognition lag and found a substantially greater outperformance gap by AMAT at the end of this period than the previous bottom to bottom comparison. It's easy and fun to alter the custom date settings and compare results. I would be curious to see whether it holds true during other cycles.

To: Cary Salsberg who wrote (11341)	9/17/2003 12:51:09 PM
From: Sam Citron	Read Replies (1) \| Respond to of 95888

Cary, I would like to revisit a conversation we had earlier and which began with your recommendation that investors switch to the quality names as the recovery unfolds. We then got into a discussion of when might be the optimal time to make such a switch. I even did some backtesting of the hypothesis based on AMAT as a proxy for quality and KLIC as a proxy for "non-quality", but you disagreed with my selection of a particular time period. I am now convinced that had we framed the discussion in terms of large cap v. small cap performance instead of high quality v. low quality names, it would have been more fruitful. Here is a start: Message 19311735 You might also see my reply to Gus suggesting that small cap stocks tend to outperform large cap stocks for at least the first 3 years of a recovery. siliconinvestor.com Sam