Edit, steve already posted here.. Thought he never left his desk :) oh well its good reading twice anyway..
To: +Roy Travis (1614 )
From: +steve goldman Saturday, Nov 8 1997 8:25AM EST
Reply #1616 of 1619
Anything I might state below is in NO WAY a recommendation of this stock,etc. It has toubles and will probably have them for a time being. I am using them as a way of presenting my analysis for review.
I bought more. This sounds kind of simplistic and patronistic but my philosophy for my long term porfolio is to buy quality companies when they are down and sell them when they are up. I won't buy companies with management problems, legal problems, restatements, leveraged balance sheets, bad cash flow, etc.
Nonetheless, in a market like this, people's sentiment has begun to change from go-go momentum bullishness to somewhat pessimistic. People would rather hold cash right now than stock. Think to yourself, would you rather hold that position in xyza or cash? You have to be a bit reasoned, a $60 stock that corrects $5bucks when the market falls from 8400 to 8200 is not a bargain, is not enough of a slip to buy it. Nonetheless, on news, the stock market goes to extremes. On news they will punish a stock severly. SOMETIMES, not everytime, there is an opportunity to buy a top notch company, a market leader, when emotions and a amplifying bad market bring it down severely. Nonetheless, when you bottom fish for quality you have to have the stomach to see it go lower.
Typically, for shorter term trades, I never buy on the first bounce, more likely on the third if the stock meets my criteria. Wall street has a certain rhythm that doesnot sway every time, but more times than not. Sellers know they can't liquidate the whole thing that day. Buyers know the stock will get over done. Buyers come in and bounce the stock. Sellers comes back in and depress it. This will go on for atime and one or two pops to the upside might be needed to finally get all the sellers gone. By that time the sellers should be cleaned up a a bit and the stock should now be in stronger hands willing to acept the current conditiions.
Another thing I look at is the number of shares that traded down on the bad day. Today for example, I think about 9% of the company changed hands, yet the stock fell 25%. 91% of the shares did nothing. As well, this company happens to have a good reputation on wall street and is widely held by institutions. These companies are not fools. They know that if they all started selling, they would be crushing each other. In fact, I thought the stock hung in there pretty well. Any other stock that gets is numbers blasted from .83 estimated to 20/30 would normall fall from about 30 to 12.
You have to run the analysis as to why the earnings got cut. Unit shipments will actually be up. Computer sales are plugging along and hard drives will be needed regadless of pricing pressures. This leads me to the most important factor in my making a decision, the management of the company. Good management gets the job done. Good management takes a company from 200million in sales to 5 billion per year in a few years. and good management usually can see you through pricing wars etc. through consolidation, reduced cost structure, etc.
In the end, it is a gamble like any other. The question becomes which companies you feel like owning. I pesonally like owning quality companies with good balances sheets with good earneings, albeit reduced, that have gotten knocked around already.
On the downside, technology is very volatile and the company has it one year, starts to lose it the next and then by the time they recover the people who paid 50 and 60 never get out, the stock only moves back to 40. ....who knows....if the stock market were easy, everybody would be good at it. That is not the case.
What do you do with an analysis like this? First off, don't rely on it. Never take somebody else's work as your own. You are better than that. Take it, break it down, break it down, tear it apart, tear it apart, and see what parts you disagree with. If you agree with the reasoning apply the logic to stocks you own and see if they fit. If so you should be comfortable owning the companies. If not, they you should say goodbye to them.
Regards,
steve@yamner.com
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