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

To: Fredman who wrote (770)	12/24/1998 12:40:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 4691

Fred, you raise exactly the point I have been trying (unsuccessfully thus far) to make. ESV is an interesting case in point. It was trading at about $48 around a year ago. Today, it's down to under $10 I think. If you are looking at a company as a collection of assets, its obviously a value play. But, the company is trading on the business outlook for oil service companies. With the price of oil so low, and with no relief in sight, and with oil companies cutting back on their exploration budgets, it ought to be clear to everyone that the stock is trading on the collective perception of the business outlook, not the value of the rigs. But here's the rub. For the value investor, the price of oil must rise to trigger interest in the sector. So, in effect, the value investor frequently puts his money into cyclical industrial sectors whose business outlook is currently poor. If the business does not improve, the value will never be released. These companies (I have some $$$ invested in GLM) are buys if you believe they have sufficient financial strength to weather the financial storms ahead. But, these "value" companies are not growth companies. Their markets are mature, and should not grow faster than overall population growth. The excitement about "growth" is that the markets can expand at several time the population growth rate for many, many years. To convince yourself of that, just look at the growth in the total computer market over the past 40 years. I wish I had the numbers in front of me, but current growth is a measly 15% - 17%, and this is four decades after the computer revolution began! Happy holidays, TTFN, CTC