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

To: porcupine --''''> who wrote (321)	5/14/1998 6:19:00 PM
From: porcupine --''''>	Respond to of 1722

The Buysider: Capitalizing on Hype By Jeff Bronchick Special to TheStreet.com Though I've taken some decent-sized potshots at the sell-side, I confess to be moderately saddened at the impending retirement of Eric Miller as the investment strategist of Donaldson Lufkin & Jenrette. I haven't met him, he isn't a client and we aren't related, but as someone in the investment business who has always wanted to write (thanks again, TSC), I have always been impressed by his prose and the breadth of his thinking. The latter is of particular interest because what makes an investor successful is the ability to make sense of the flotsam and jetsam that pass for daily news and analysis on Wall Street, and then have the guts to apply it. I have a commentary folder over the years that details not only Miller's but other so-called smart guys' thinking, from which I've nipped here and there. Miller's recent column was on a recent meeting of the "Financial Behaviorists," who propose a theory that isn't really new but is drawing adherents because it can be discussed without pages of mathematical equations or a mainframe computer. This theory has also drawn a number of people with Ph.D.'s in psychology and statistics, sucked in by the carrot of a high-paying job at Goldman Sachs. The semiannual conferences are usually held at places like Harvard's Kennedy School, under the assumption I guess that the real smart guys are mostly from the East Coast and they can save on airfare if they keep it local. The Behaviorists are value-oriented investors who hold that much of Modern Portfolio Theory is nonsense, that investors overreact to both good and bad news, and that therefore a practical goal of investment management is to find the anomalies that these overreactions create, profit on the mistakes of others and avoid the temptation to succumb to personal bias. I've always quoted someone (attribution unknown) who said that a smart person in the investment business can make all the mistakes one can make in five years. The key to a successful career is to avoid making the same mistakes over and over. Miller lists some common biases: Optimism. Comfort with the status quo. Illusions as to what you can control. Selective memory (my favorite). Narrowmindedness. Short-term orientation. Ignoring chance and uncertainties. Being more sensitive to losses than to gains. Exaggerating skills (another personal favorite). A number of these issues are pertinent to today's market, with the first being the screamer. The status quo issue also hits close to home, since I am a value-oriented investor. I have some clients who split their pension money between us and a growth manager. The growth manager comes in and talks about the so-called status quo stocks, like Coca-Cola (NYSE:KO - news) and Gillette (NYSE:G - news) and how wonderful they are. It is a powerful presentation that everyone in the world can immediately appreciate, particularly with the recent performance of the largest of the large-cap consumer growth companies. Then I come in and talk about how miserable Motorola's business is, how they are getting clobbered in the Far East, the fact that the stock has gone nowhere for four years and therefore we're buying it. Not surprisingly, I wouldn't do well if a poll was taken the next day. It isn't easy to buy something when everyone else has just sold it and is listing its many problems. As Miller says, "It's just more fun to own sexy stocks that you can order right off the popularity menu." The tendency to extrapolate the recent past into a highly uncertain future and to find comfort in the status quo has led to an enormous body of academic work that strongly favors a value orientation over a growth orientation. The tendency is also applicable to mutual funds and money managers chasing the hot performance. Investors bring unsustainably high expectations to the popular feast, and the price of admission is so high as to invite disappointment and punishing capital losses. Value works over time because it is a strategy of winning by not losing. Value investing is lonlier, because most people think value investors "don't get it," and who wants to hang out with a crank who's always taking potshots at popular conventions and investing in things that take time to understand? Miller then lists some bad investing habits that biases can lead to: Favoring longshots. Trading too much. Selling winners and keeping losers. Seeking confirming evidence when you need a devil's advocate. Looking at your portfolio too often. Losing perspective about risk. So what's your problem?

To: porcupine --''''> who wrote (321)	5/16/1998 7:07:00 PM
From: porcupine --''''>	Read Replies (2) \| Respond to of 1722

Microsoft talks collapse, antitrust lawsuit likely By James Vicini WASHINGTON, May 16 (Reuters) - Talks collapsed on Saturday between Microsoft Corp. (MSFT - news) and government officials, making likely the filing of a big antitrust suit against the software giant on Monday. Representatives of the U.S. Justice Department and 20 states held two days of talks in Washington in a bid to explore whether a settlment could be reached to avoid a lawsuit. ''It appears that it's over,'' for a negotiated settlement, said a source close to the state attorneys general. ''It looks very likely that the state attorneys general will file on Monday,'' he added. The Justice Department confirmed in a brief statement that the talks were over. ''At this point they are not expected to resume,'' it said. Federal and state governments had been poised to file antitrust suits on Thursday but agreed to talks in return for Microsoft agreeing to delay Friday's shipment of its Windows 98 operating system to computer makers until Monday. Public release of the updated version of the enormously popular Windows 95 software is scheduled for June 25. A Microsoft spokesman said the company had worked hard to make the negotiations succeed because the company believed a lawsuit would be bad for consumers, taxpayers and whole high-tech industry. ''We've made a number of significant offers to address the government issues but the government is making unreasonble demands that would threaten our product design and our ability to innovate,'' company spokesman Greg Shaw said. ''We're still willing to negotiate further but we cannot agree to the governments' uneasonable demands,'' he said. The states and the Justice Department have readied a major complaint accusing Microsoft of abusing its power and driving competitors from the lucrative software market. Microsoft's critics charge it has unfairly competed by incorporating more and more featurers into its Windows operating systems and using its dominance to dissuade computer makers from removing its screen icons and products. But the company says it is giving consumers the best operating systems possible by integrating features like its Microsoft Explorer web browser into Windows 98. The source close to the states said the talks ended when Microsoft withdrew a major concession it had offered on Thursday to allow computer makers to modify the startup screen consumers see when they switch on their computer for the first time. ''They (Microsoft) walked away from the discussion,'' the source said. But Microsoft's Shaw said state and federal lawyers had wanted to force computer makers to ship Windows 98 with a rival Internet browser made by Netscape Communications Corp. (NSCP - news), among other unreasonable demands. ''Which would be a lot like asking Coca-Cola to ship three Pepsis with every sixpack,'' Shaw said.