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

To: Michael Burry who wrote (4735)	8/21/1998 12:09:00 PM
From: Wallace Rivers	Read Replies (1) \| Respond to of 78602

Mike, I personally am feeling the same pain/frustration you are. I've prided myself in beating the S&P 500 for the last decade. Definitely far from it this year - I have a list of stocks which have gotten shot. YPF has now round tripped to my purchase price of about three years ago. My broker's sales assistant mentioned something about devaluation in Venezuela: I said to him, I thought we were an Argentinian company?! Have you heard anything about this link, which seems unlikely. Good luck, and keep your chin up!

To: Michael Burry who wrote (4735)	8/21/1998 1:35:00 PM
From: Kathleen capps	Respond to of 78602

Michael, PSO hasn't fallen (knock on wood). Kathleen

To: Michael Burry who wrote (4735)	8/21/1998 1:46:00 PM
From: Axel Gunderson	Respond to of 78602

Mike: My sympathy on your (and everybody else's) bad luck. It is very frustrating to have made a sincere effort to intelligently invest and then have it not seem to matter. But something we should keep in mind is the time scale. It seems to us that this market behavior has been going on a long time, but when we look back on it years from now, we will realize it hasn't. In Dreman's book he points out that after he called the Japanese market a bubble, it went up another 50%, over a couple of years. But today, seven (?) years later, it still is below where it was when he made the bubble call. The two years of going up seems insignificant now, doesn't it? In a similar vein, we are seeing the market repeatedly make little drops. We see the bargains appear! But you know what? This can keep going for a very long time. I would also be interested in discussing the margin of safety. I'll throw out some of my opinions for a starting point. 1) The first source of safety we should seek is business safety. This stems predominantly from qualitative factors, with financial strength as the predominant quantitative factor. 2) We should be very careful in our use of "value" guidelines. One of the scariest for me is P/B. Book value is subject to at least as much distortion as accrual earnings, and it takes more effort to figure out "true" values. Unless you can work full time on it, I am of the opinion that this one should be rather avoided. Exception: when book value has a large cash component. There has been some recent discussion on this thread recently about specialty metal producers which might seem cheap. Unfortunately, a company bleeding cash might seem cheap by P/B (or some other measure) but it doesn't change the fact that it is bleeding cash. Now these companies may be dominant in their field, but it is not a field with high economic returns. Indeed their stocks may turn out to be out-performers over some time period, but with companies such as these, it is really difficult to pick the time period. Just opinions, just a starting point. Axel

To: Michael Burry who wrote (4735)	8/21/1998 7:01:00 PM
From: James Clarke	Read Replies (2) \| Respond to of 78602

I am more than 50% in cash, and raised another 10% today, but what I have in stocks is outperforming on down days. (Though underperforming on up days). The reason I think is dividend yields. Half of what I am still holding is in USEC, yielding 7 1/2% and two REITS yielding 8 and 10%. Also have a large part of my remaining portfolio in PSO, which is trading below net-net value, has a decent yield and is not owned by institutions. FWIW, I sold the last of my St. Joe today. The problem a lot of value investors are having is that they considered beaten down cyclicals defensive. I am working on a statistical study for my firm which I will post when appropriate, but the gist of it is that you're not going to see a bounce in these until the end of the year. In the '87 crash, already beaten down cyclicals got murdered even worse than their overvalued counterparts. Cyclicals have definite seasonality, and going into the fall is absolutely the worst time of year to own them. I'll develop this further over the next couple months if anybody is interested. Jim

To: Michael Burry who wrote (4735)	8/21/1998 8:57:00 PM
From: Shane M	Read Replies (2) \| Respond to of 78602

Mike, I'm hurting quite a bit, but I am unable to compare to the market since I was not fully invested going into this year and have been regularly adding money to my stock account throughout the year. Was down 2.4% today. Deswell is by far my worst loser, and HIHOF - which I bailed from a month ago - was my 2nd biggest loser. I am currently down in every stock I currently hold except for ORCL, which is barely up. (I just started my stock account around Christmas, so I don't have any long term holdings yet.) As far as margin of safety goes, I'm trying work relative strength into my stock picking. Recently read O'Shaugnessy's "What works on Wall Street" and he found that Relative strength combined with value investing seems to work pretty well. AAII as well as William O'Neil CANSLIM investors are also big proponent of buying stocks with good price performance. It does seem that there's something to momentum, even if it's only a measure of improving market sentiment for a stock. Buying into Relative Strength, however, really prohibits us from doing things like averaging down, or buying beaten down stocks. Some of the stocks with value/growth characteristics I like which also have decent relative strength are SRI, DVD, BNE, and perhaps CXP. I don't own any of these yet because I've tended to buy value stocks that are in the dumps, but as I move out of these I am going to be more careful about buying the falling knife. I was tempted to buy NH just a few days ago, but kept telling myself that I've got to quit buying stocks that are in a downtrend and start listening to Mr. Market who is telling me something. A margin of safety to me is starting to mean less about defense and buying a company at rock bottom prices, and meaning more about buying some offensive companies with a brighter future - with something to get excited about, even if that means paying for higher ratios than a typical value investor would prefer. I'm finding that even solid value stocks, like Deswell, can find a way to go down 50% if sentiment is against them, so I'm becoming more willing to take a 50% hit in a more growth oriented companies with good prospects. (Not that Deswell is not growth oriented. It is IMO. I simply would've saved alot if I would've just not continually averaged down on this stock, which would've meant paying attention to poor RS.) Well, I better quit now. Have been typing too long. If anyone has comments on Relative strength I would love to hear your views. Shane