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

To: jhg_in_kc who wrote (724)	12/23/1998 3:38:00 PM
From: cfimx	Read Replies (3) \| Respond to of 4691

how much you wanna bet this guy wasn't saying this only two or three months ago, when a little hedge fund almost got the blame for bringing down the whole enchilada. >>But throw a capital asset in the mix, like stocks, and all of a sudden these guys start looking at things like book value and P/E. I am convinced that the key to valuation is the reasonable assessment of FUTURE cash flows. I am also convinced that we are on the leading edge of a major industrial revolution which will result in the replacement of the much of the specialty retail segment with electronic commerce. The beneficiaries are going to be companies like Dell, CSCO, ASND and TLAB, which provide equipment to shoppers roughly analogous to the car, and companies like AOL which are roughly analogous to the shopping mall. The electronic stores that will emerge will replace many existing physical stores.<< No, we never here this stuff at bottom's do we?

To: jhg_in_kc who wrote (724)	12/23/1998 3:41:00 PM
From: James Clarke	Respond to of 4691

I've been accused of a lot of things, but I don't think I've ever been accused of not being ready to swing the bat when I think I see a big opportunity. I do not consider missing Dell below 50 times earnings or AOL below 200 times earnings anything to lose sleep over. I invest in a different style than you, and I in no way agree that "times have changed". I am not looking for opportunities that would excite you because I am not interested in predicting the future. And first and foremost in my mind is valuation. i.e. risk. With the market at 26 times earnings, with earnings falling, I am much more concerned with risk than with "excitement". I would love to hear your assessment of what risk you are taking investing in very popular stocks at 50+ times earnings. That's just not the game I play. Jim

To: jhg_in_kc who wrote (724)	12/23/1998 3:44:00 PM
From: Robert Douglas	Respond to of 4691

I guess I shouldn't be so mean two days before Christmas, my apologies in advance. The problem with [here I insert, momentum players] is that they talk about investing but don't understand it. To put it very simply, they confuse investing with speculation. A moving stock and a craps player on a roll are both analyzed on the same basis: If it's moving buy it because the trend is in motion. But throw a market decline in the mix, and all of a sudden these guys start looking like a puppy that has lost its home. They say things like: “I am convinced that the key to valuation is the reasonable assessment of FUTURE cash flows. I am also convinced that we are on the leading edge of a major industrial revolution which will result in the replacement of the much of the specialty retail segment with electronic commerce. I am convinced of this because the stocks are moving like gang busters and they talk about this on CNBC all the time. The beneficiaries are going to be companies like Dell, CSCO, ASND and TLAB, which provide equipment to shoppers roughly analogous to the car, and companies like AOL which are roughly analogous to the shopping mall. I know I said this about my investment in the Home Shopping Network, but this time it's real. The electronic stores that will emerge will replace many existing physical stores. Just like my prediction that the "paperless society" would put the paper companies out of business. And if these stocks stop moving, I'll think of a convenient reason and move on to something else that is hot, like I did when I shifted from oil shale to biotech to gaming companies and now to Internet stocks. So why is this exciting from a business point of view? Because, aside from the requirement to reinvent the infrastructure with electronic networks (which means lots of business for the equipment manufacturers like CSCO) there is the ultimate driving force of increasing productivity by reducing manpower requirements, and the reduction of capital required to carry on e-commerce. I like using words like this because is makes me sound like I am doing some sort of economic analysis when really I just chase what's hot. This adds up to huge increases in cash flow for those companies well positioned to take advantage of the new industrial revolution.I love to predict new eras because it sound good, and the beauty is that these stocks don't make any money now so that I can make up any numbers on profit margins, even if they are 10 times what retailers earn. Who cares because nobody knows.. So now, tell me about momentum players? Those who are stuck in the mode of jumping on whatever is hot regardless of value will never get it. They are like the teenager with no convictions – they buy whatever fad is hot convinced that it will stay in style forever. They just don't get it.

To: jhg_in_kc who wrote (724)	12/23/1998 3:47:00 PM
From: James Clarke	Read Replies (4) \| Respond to of 4691

<<The problem with [here I insert, Buffettology true believers] is that they talk valuation but don't understand it. To put it very simply, value is in the eye of the beholder. Real estate and ketchup are both valued on the same basis: what a willing buyer and willing seller agree to.>> Well, duh. Of course a share of AOL right now is worth $137 because I know I could call my broker and sell it for that. If somebody offered to sell me 100 shares at 134, I'd buy them, and then run for the phone to call my broker. That is not at all what value investing is about. Why are AOL shares worth $137? Its a great company. Its a growing industry with a big future. So why not $120? Why not $70? You ridicule me for being too methodogical in valuation work. Do you do any valuation work at all? In my opinion you think you understand one of the three tenets of Buffetology, which is buy great businesses. But you have displayed zero understanding of the other 2/3, which is buy businesses which you can value and buy them at a margin of safety to that valuation. Jim