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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (3583)	3/22/1998 3:11:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 78652

With regard to your comments, 1. Fees are in part derived from trading. Major brokerage houses like ML and Fidelity run mutual funds. 2. My use of the term "beat the market" was ill chosen. The philosophy of buy and hold is not to beat the market, but to ride with the market. I should have said out-perform the market averages. 3. The essence of MPT is this: Risk and return go hand in hand. The greater the return you desire, the greater the risk you incur. I like rapid growth, so I look for those kinds of companies, and my trigger point for selling is not price. It is when the underlying reason for buying the stock (rapid growth) is compromised. The MPT theorist would point out that a value play is one in which the risk is lower than would be implied by the expected rate of return. And finally, yes, I believe that the best advice for people is to buy and hold growth companies at levels at which they feel comfortable with the implied risk. This does not mean the companies I listed -- I am happy with that kind of risk. To my mind, there is little point in investing in a company that is not expected to grow its cash flows. Would you invest in a buggy whip company if it were selling at less than book value? Potential "value" plays are to be found in companies holding undervalued assets like land (which is carried on the books at cost). But the key is not what the break-up value of the company may be, but what is the probability that an investor will realize the break-up value. What are the chances that Weyerhaeuser will liquidate itself? In my experience, the less you are tempted to churn, the better. The effect of taxes on portfolio performance is profound. I do spend quite a bit of time doing thorough financial analysis on any company I invest in. This is done not with an eye to finding value, but to garner a better understanding of how management operates, its efficiency in handling inventory, potential liquidity problems etc. I also make sure that the price the stock is selling for has some reasonable relationship to the company's expected long-term growth. All of the companies I listed pass these litmus tests. In looking at my portfolio over the years, I found that I tended to hold stocks on average about 26 months. Regards, Paul