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

To: cfimx who wrote (727)	12/23/1998 4:34:00 PM
From: jhg_in_kc	Read Replies (2) \| Respond to of 4691

I will defend my friend Chuzzlewit. He WAS saying this during October bottom. In fact he was advising Dell investors to "sit on their hands" and "not panic" and keep in mind Dell's business model and future. He has been saying something similar to this for the three years in which his Dell shares have grown eight-fold. jhg

To: cfimx who wrote (727)	12/23/1998 5:19:00 PM
From: Chuzzlewit	Respond to of 4691

Yes, I'd like to bet! Here is a post I made on Oct 12: Carl, I'm back from a brief vacation. I did buy some more Dell the other day at $42! I don't try to time the market. I'm in the habit of staying fully invested, and when I have enough cash from selling out of the money calls I buy more of the underlying stock. So, if October 12 constitutes a bottom, then yes, you did hear it then. And I can also dredge up a series of posts following the October '97 'crash' advising friends not to sell. Now let me put my philosophy in very succinct terms. Investing is the art of finding companies that will grow earnings substantially over the course of many years. It is not finding the latest and greatest bubble on the street. To take advantage of that, the investor needs to hold for substantial periods of time. So, before you put words in my mouth, you might find it interesting that I have owned companies like TYC for over a decade, companies like T (together with all of its spinoffs like ATI, LU SBC) for over 30 years, and growth companies like IBM for over three decades. Now, if you were to rank those holdings in order of total return you would find that there are no real surprises; the companies that have grown their income per share the fastest are the ones with the greatest appreciation. But I don't want to be a pioneer. I need to be convinced that companies have both demonstrated earning power and staying power. So, while Dell intrigued me five years ago, I resisted its siren song (unfortunately) until such time as I became convinced that this was no flash in the pan. Why am I telling you this? To disabuse you of the notion that the only alternative to value investing is momentum investing. In fact, I could make a case that neither value investing nor momentum investing is really investing. The reason is that both are short-term in nature, and I believe in long term holding, because that is the way to take advantage of the superior potential generated by growth companies. I call what I do a modified buy and hold. Here is how it works. Identify a basket of companies with superior long-term growth prospects. Make sure that the expected growth in cash flows is roughly consistent with the price you pay for the company. Now the sell decision is triggered only by what looks like a long-term negative with respect to growth. The price of the stock is never a rigger to either buy or sell. The approach is essentially an extension of MPT tailored for growth companies. This approach has a couple of advantages: first, you keep your eyes on the company and industry news and ignore the "analysts", T/A crackpots and the frenetic reporting on CNBC; second, you keep you money working since the idea is to stay fully invested (as I write I am 98% invested in equities, 2% in cash); third, you get much better tax treatment -- in fact, you can accurately characterize the tax code as providing you with an interest-free non-recourse loan. There is plenty wrong with value investing. If nothing else (and believe there is a lot else!) it leads to churning and paying significant amounts in taxes if your value analyses pay off. By contrast, I find that my asset turnover is generally less than 15% per year. And, oh yes, before I forget, my total return on TYC over the 12 years I have owned it is about 22.9% (not counting dividends), and I have not paid a penny in capital gains taxes on it. TTFN, CTC

To: cfimx who wrote (727)	12/23/1998 5:20:00 PM
From: Chuzzlewit	Respond to of 4691

Yes, I'd like to bet! Here is a post I made on Oct 12: Carl, I'm back from a brief vacation. I did buy some more Dell the other day at $42! I don't try to time the market. I'm in the habit of staying fully invested, and when I have enough cash from selling out of the money calls I buy more of the underlying stock. exchange2000.com So, if October 12 constitutes a bottom, then yes, you did hear it then. And I can also dredge up a series of posts following the October '97 'crash' advising friends not to sell. Now let me put my philosophy in very succinct terms. Investing is the art of finding companies that will grow earnings substantially over the course of many years. It is not finding the latest and greatest bubble on the street. To take advantage of that, the investor needs to hold for substantial periods of time. So, before you put words in my mouth, you might find it interesting that I have owned companies like TYC for over a decade, companies like T (together with all of its spinoffs like ATI, LU SBC) for over 30 years, and growth companies like IBM for over three decades. Now, if you were to rank those holdings in order of total return you would find that there are no real surprises; the companies that have grown their income per share the fastest are the ones with the greatest appreciation. But I don't want to be a pioneer. I need to be convinced that companies have both demonstrated earning power and staying power. So, while Dell intrigued me five years ago, I resisted its siren song (unfortunately) until such time as I became convinced that this was no flash in the pan. Why am I telling you this? To disabuse you of the notion that the only alternative to value investing is momentum investing. In fact, I could make a case that neither value investing nor momentum investing is really investing. The reason is that both are short-term in nature, and I believe in long term holding, because that is the way to take advantage of the superior portential generated by growth companies. I call what I do a modified buy and hold. Here is how it works. Identify a basket of companies with superior long-term growth prospects. Make sure that the expected growth in cash flows is roughly consistent with the price you pay for the company. Now the sell decision is triggered only by what looks like a long-term negative with respect to growth. The price of the stock is never a rigger to either buy or sell. The approach is essentially an extension of MPT tailored for growth companies. This approach has a couple of advantages: first, you keep your eyes on the company and industry news and ignore the "analysts", T/A crackpots and the frenetic reporting on CNBC; second, you keep you money working since the idea is to stay fully invested (as I write I am 98% invested in equities, 2% in cash); third, you get much better tax treatment -- in fact, you can accurately characterize the tax code as providing you with an interest-free non-recourse loan. There is plenty wrong with value investing. If nothing else (and believe there is a lot else!) it leads to churning and paying significant amounts in taxes if your value analyses pay off. By contrast, I find that my asset turnover is generally less than 15% per year. And, oh yes, before I forget, my total return on TYC over the 12 years I have owned it is about 22.9% (not counting dividends), and I have not paid a penny in capital gains taxes on it. TTFN, CTC