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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Berney who wrote (50)	3/8/1998 1:17:00 PM
From: porcupine --''''>	Read Replies (2) \| Respond to of 1722

<< It is clear to me that there are three investment themes for the future: Tech, Financial and Health Care. >> It's clear to me too. What's not clear to me is how best to profit in these areas -- within the framework of a Value Discipline. It does not have to be the discipline Graham used in his era -- or that Buffett used in his. But, for me at least, there has to be some way to reconcile an investment decision with what I understand to be economic science applied to today's political economy, which is what Value Investing is in the most general sense (an insight I owe to Janet Lowe's recent "Wit and Wisdom" book on Buffett). Hi-tech is an area which Graham, Buffett and Lynch unanimously held in disfavor. So, it is only in recent years that I have tentatively entered the hi-tech arena. And what I have found, generally, is a bewildering array of "what if's" -- at fancy p/e's. The are a few hi-tech stocks I favor -- but far fewer than one might expect in so large and growing a field. My major experience with financial stocks has been Southwest Secuities, which I still believe is a great little company. But, I found that playing SWS required guessing correctly what the Fed would do about interest rates. And I guessed wrong, going into SWS -- and coming out! Greenspan raised short term rates to 6% in 1994 with the economy having much less slack than it does now, but in spite of his repeated warnings, he raised rates only by .25% [to a total of 5.5%] a year ago. It was enough to scare me into getting out of SWS, to avoid a rerun of the 1994 carnage in financial stocks. Now, with employers so desparate for employees that they call drug rehab programs looking for warm bodies that at least aren't actively using drugs (as reported in the WSJ in an unrelated story), the Fed continues to leave rates as they are -- and the long bond continues to fall. Too hard for me to figure out! And...there's not a lot of margin of safety in current valuations on financial company stocks. As for health care, it is really a category of hi-tech (much of which is bio-tech and some of which is electronic-tech) that combines the "what if's" already inherent in hi-tech with the additional "what if's" of much greater government regulation -- and the wonderful world of the personal-injury-plaintiffs' trial bar. In the early going in TII, Graham uses both the hi-tech and air freight industries to illustrate his point that rapidly growing industries typically attract a degree of business competition and investor enthusiasm that erodes profit margins at the same time that it attaches premium multiples to the common stock of these companies. So, I agree that these are the big 3 growth themes for the foreseeable future. But, I am treading very cautiously into these investment waters. Reynolds Russell web.idirect.com "There are no sure and easy paths to riches in Wall Street or anywhere else." (Benjamin Graham)