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

To: dj8000 who wrote (5487)	12/19/1998 4:35:00 PM
From: Michael Burry	Respond to of 78705

DJ, I guess maybe if you were more familiar with the thread, you wouldn't have been pointing out to Jim Clarke that book value can be inflated by worthless inventories (and, of course, many other factors). There are many people who would know something so obvious, and Jim is certainly one of them. Re: finding no downside risk in stocks, you're missing the point when you suggest buying a CD. My thinking, and I believe Jim's, is that with proper analysis, time frame, and stock price, you can determine whether a stock has downside risk, and without being quantitative (foo on beta), categorize that risk as large, medium, or small, or virtually nil. The upside doesn't need to be in the forefront, since typically in the case of the "virtually nil downside risk" category, it is a given that the company would be decent value at 2-3X the current stock price. You count on the market recognizing at least a part of that within whatever time frame you set, and count on being right in your analsis the majority of the time. This extreme form of value investing, with "virtually nil" risk, is very difficult to practice. It means swallowing the fact that the market thinks there is no upside and every other analysis you've seen says that this sh** really smells. So it follows that the biggest problem I've had, and I've noticed others have, is that we buy value stocks when they are still in the "small" or "medium" downside risk category, i.e. the story still offers some hope, and see the stock get halved. New Holland at 17 may have small downside risk, but at 9 1/2 it became virtually nil. Then it didn't matter how long the down cycle or how long until good news, 9 1/2 was a buy. Waiting for these fat pitches is the hard part, and most of us can't do it consistently. The few that I've seen do it, and Jim seems to be one of them, have had good success in a tough market for value investors. Good investing, Mike