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

To: Chuzzlewit who wrote (909)	1/3/1999 4:05:00 PM
From: Shane M	Read Replies (1) \| Respond to of 4691

Chuzzlewit, When I look at technology companies I really try to look at them in terms of both Buffettology and the Gorilla game. I recognize that most, if not all, of the tech stocks will never be Buffett buys, but I feel alot of the tech stocks have strong enough franchises and barriers to entry to warrant analyzing as a Buffett company. At the same time I can understand why others would want to not consider techs at all. (FWIW, I feel MSFT, CSCO and INTC have strong enough business to qualify as Buffett businesses IMO, but their valuations are currently too high for a buy. I am looking to buy these on significant dips.) * The remainder of this is primarily off topic *** The Gorilla Game by itself provides a strong basis for understanding what is required for competitive advantage in the tech area, but provides poor guidance on valuation. I think valuation is particularly important for the tech gorillas now because the prime tech gorillas are selling at all time high valuations - no matter how you look at it. No matter how great their business is I can't find any way of looking at these companies without concluding they're at unprecendented valuation levels. More traditional valuation measures seem to work OK for mature companies (like MSFT, CSCO, and INTC), but they all just look expensive right now. That said, they weren't looking expensive last summer. I was still learning at the time, but TLAB, CSCO, and ORCL were screaming "buy" at me then. I was only listening with ORCL, but have resolved to pay more attention to the tech area on price weakness. The key to having confidence in techs IMO is understanding the strong competitive advantages/high switching costs some of these companies can have. To help determine valuations for gorilla candidates - the younger cos that are not gorillas yet - one thing I've found helpful to do is look at valuations such as PE, P/S, P/CF, etc over time for current gorillas. To me this helps determine what a market is willing to pay for a company with gorilla characteristics. I was amazed at the wide range of valuations the market gives over time. The volatility of such stocks tends to provide ample opportunity to buy near the lower end of the valuation scale. If you have access to Baseline Profiles it will give you a 5 year range of valuations for most stocks. I have 7 yrs of history on an AAII database with marketguide data that allows similar comparisons. Studying the life cycle of gorilla valuations is worth the effort IMO if you're going to try to invest in gorilla candidates. If you want to dig I may have posted some of this information on the Gorilla Game thread on SI. If you'd like to continue the Gorilla game conversation on that thread I will go over there and discuss with you. Subject 19790 Shane