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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: TraderEd who wrote (2307)	12/6/1997 9:37:00 PM
From: Gary M. Reed	Respond to of 42834

Guys, By saying that KO, XRX, WMT, etc are "fad" stocks, we're not insinuating that these companies themselves are faddish. What we're saying is this: during every bull market, there are usually 5 or 6 "one decision stocks." They are a fad investment. What makes a "one decision stock?" Usually, it is a stock that 1.) everyone has heard of their products/services; 2.) has greatly outperformed the bull market at that point; and 3.) everyone you talk to either owns the stock or says they gotta have it. Verifying the fad qualification, you hear people commenting "I bought KO. How can you lose money on KO? All it does is keep going up..." Everyone you talk to is buying the stock, yet they'd have no clue what the company's fundamentals really looked like compared to the rest of the market. Xerox was one of these stocks in the early 70's. In the late 80's, it was WalMart, hands down. In the 90's, KO certainly qualifies. Recently, I would say that DELL and CPQ are nudging their way into the fray. It is nothing more than a tangent of "the greater fool theory." Throw conventional analysis out the window--"these stocks always go up" is the battle cry you hear. Maybe instead of calling them fad stocks, perhaps a better term would be "bandwagon stocks," since everyone is jumping on the bandwagon. I mean, I just cringe when I hear clients telling me that kind of stuff. Sure, these companies have great franchises, but believe me, you're paying top-dollar for those franchises. I have to laugh when I hear people tell me stuff like, "How can Coke ever go down? Everyone drinks it...yada yada yada." Call me crazy, but I just feel more comfortable buying a stock at a discount to its growth rate, or buying a stock that I can buy at a discount to what the company is really worth. Regardless of whether I've ever heard of the company before or used their products/services. Cramer from thestreet.com and CNBC fame said it best--these stocks ARE the market. Now, if your goal is to BEAT the market, your defeating your purpose by owning these stocks--you might as well save yourself the grief and aggravation by buying into an index fund. You'll never outperform the market by owning these bandwagon stocks--after all, how do you know there will be a fool behind you who is willing to pay more than you just did? Kudos to BB for saying the emperor (in this case, KO) has no clothes. Sure, KO will never have to worry about going out of business, but why in the world would you pay 25-40 times earnings for a company whose product sales and earnings are growing at less than 15%???