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

To: Chuzzlewit who wrote (908)	1/3/1999 2:53:00 PM
From: cfimx	Read Replies (2) \| Respond to of 4691

>>>. I think it is fair to ask whether Buffett's approach has general economic applicability or is restricted to those times when industrial revolutions are consolidating rather than emerging.<< investor.msn.com Gee, Warren, I've been wondering. I know you TALK a good game. But, Does your approach have GENERAL ECONOMIC APPLICABILITY, OR DOESN"T IT? You've ducked this question way too long. Ta Ta Warren, ya dunce.

To: Chuzzlewit who wrote (908)	1/3/1999 4:16:00 PM
From: James Clarke	Read Replies (2) \| Respond to of 4691

Growth is not my game. I think it was Peter Lynch who said, give me the low cost producer in a boring industry that can just crank out 12% growth year after year by cutting costs and buying competitors. As opposed to buying into the fastest growing industries. Because guess where the new competition is going to emerge? Not in the railcar industry, but I would bet Rambus is going to have some company. For me its not about growth, its about competitive dynamics and barriers to entry. Microsoft and Intel have had both. But look at the internet retailers. I could see a very likely scenario where the market continues to grow rapidly for a while, but still nobody makes much money. AOL is by no means a sure thing either until we see how this new consumer market develops. I think I read somewhere a few years ago that technology has basically been a big zero in terms of economic profit (return in excess of cost of capital, i.e. EVA). That since the birth of the computer, only a few companies (we know who they are) have made all the money, and the others' losses wiped all of that out net-net. Its not so hard to believe if you think back to all the companies selling computers in the early 80s and the Wangs and the Digitals and those are the ones that have survived (sort of). Now I see what the logic of your Gorilla Game is - to buy them all and then winnow the list down. Interesting approach, but it sounds like you've got to be pretty damned smart to do that in real life. For instance if ten experts had started with all computer manufacturers in 1982 or 1985, I would bet none of them would own Dell or Compaq today. Compaq went through several crises where its survival was in doubt, let alone its "dominance". This is the kind of strategy which looks great in hindsight, but then when you ask, hmm, what if I had been wrong and narrowed my bet to the wrong horse? You'd have been wiped out. There's a book I probably have to read. Thanks. And Wright, where might I find a copy of that Munger UCLA speech? JJC

To: Chuzzlewit who wrote (908)	1/3/1999 8:52:00 PM
From: Wright Sullivan	Respond to of 4691

Chuzz- Thanks for the update and clarification on the Gorilla approach. I need to read the book. "Why the fascination with being strictly Buffett?" Well, I don't think many of us are strictly Buffett investors (even if that could be defined), but this is a Buffett thread. We want to learn to weave the Buffett techniques into our own methodology. We sure don't come here to talk about non-Buffett approaches; there are plenty of other threads for that. Why the fascination with Buffett in general? No, it's not hero worship. Buffett has shared a great deal of insight, primarily in his annual reports, and I assure you these nuggets are quite worth contemplating regardless of your investing style. For example, to paraphrase Buffett: When good management is brought into a company in a lousy industry, it is usually the reputation of the industry which survives intact. That's not just a quip, though it is a good quip. It contains wisdom. And it applies to tech stocks as well as it does to textiles. Regarding your points on G or KO: I personally doubt these are Buffett stocks at current prices (i.e. buys). There is a BRK tax issue involved, which Shane or somebody brought up recently. When I think Buffett stocks, I don't think KO in 1998, I think KO ten years ago. We are interested here in the methodology, not in following Buffett blindly into KO, G, or anything else, only to show up a dollar short and a day late. There is absolutely no need to "update Buffett's thinking"--quite a laughable proposition, given that BRKA/B rose around 50% last year. We haven't discussed it much around here, but the General Re acquisition looks to me like it could be a stroke of genius by putting BRK's super-cat business, already remarkable, in a league completely of its own. I would think that BRK can now do things in insurance that no other company on earth can. [All IMHO, and I don't know much about insurance]. The bottom line is that Buffett's approach has generated killer returns while keeping risk low, and has done so in this period of "low growth" during your "current industrial revolution" (i.e. the new tech age). What we're not so sure of around here is the reliability of earnings from all these tech stocks growing at 20% and up per year. I think most of us would suggest that there is additional risk associated with investing in many of these tech gorilla-wannabes. Risk should cause a lower price, not a higher price. But Mr. Market has his mind on other things right now, such as the rosy future which is all but certain for these companies... OFF-TOPIC: I do think that, of the stocks you mentioned, NETA has the most potential to dominate a market it does not dominate now. CHKPF has dominated firewalls in the past, and I thought that would be a very slick way to profit from internet growth without paying the ungodly premiums of the Yahoos & Amazons. Alas, as the Brits say, I was "too clever by half", i.e. not shrewd at all. CHKPF "only" rose 25% (after taking me on a wild ride to almost zilch and back). But CHKPF has not pursued a "complete solution" strategy as NETA has, and NETA's approach looks like it will make them a huge player in the network security space. If earnings are really there (but are obscured by acquisition writeoffs), NETA may make a lot of sense, though I haven't looked at its price. For some reason, the network security space hasn't taken off like the rest of the internet stocks have, though AOL, AMZN, YHOO, and others ALL need more and better security systems as they grow. I guess if Amazon's "secure server" pages had "NETA Secure Server" (or CHKPF) at the top of the web page, we'd be in the clouds right now. These guys are suffering from low visibility. I'll be off-line for the next couple days. (I'm sure that's a relief to some of y'all.) -Wright