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Strategies & Market Trends : The Round Table: A work by the squares of the SNDK thread. -- Ignore unavailable to you. Want to Upgrade?

To: Ausdauer who wrote (11)	2/26/1999 12:56:00 AM
From: Ausdauer	Respond to of 194

The Round Table Ausdauer's Investment Strategy (page two) My initial investment in SanDisk early last Fall marked a significant step for me. In the past I had invested in companies I heard about through work that had exciting products. I did this with little insight into what made these companies fundamentally successful or worthy of investment. As a result I had some winners and some losers. One painful loss told me that I needed a disciplined approach to investing. I could not imagine losing as much money as I did in such a short period of time all over again. By reading about investment strategies I created a false sense of security. I felt that somehow I might be shielded from any further misadventures. I was wrong. I learned that even the best researched investment can become derailed for any number of reasons, seen or unforeseen. SanDisk was my second painful lesson in investing. It taught me that even a seemingly fantastic investment opportunity can become a nightmare. I have discussed my tribulations on the SNDK Thread already and will not repeat them here. In the past several years my interests have evolved into a combination of two investment philosophies: value oriented investing and the concept of growth at a reasonable price. Value Investing: Being a cheapskate at heart the notion of investing in a company that has reached some fraction of its measurable value was appealing. The biggest problem I faced was realizing that value investing was never really designed for small capitalization companies (particularly not those in the high tech industry) prone to being tossed around by the volatility of the market. Second, value investing required a) locating a company that had essentially been abandoned by the mainstream investor, b) making some rational assessment the value of its skeletal remains, c) waiting for the price to fall to a final resting point, d) investing, e) believing you had found some redeeming quality missed by everyone else, and f) then waiting for the stock to be rediscovered by Wall Street. This strategy requires a lot of patience. You have to get used to not talking yourself out of the investment as you sit and watch the stock price firmly affixed in a trading range at or below your entry price. This is especially hard in the middle of a bull market. I now feel that value remains an important feature, however growth at a reasonable price couple with some measure of value is a better general approach. I read The Motley Fool Investment Guide and enjoyed the chapter which outlined the approach to investing in small capitalization growth companies. It presented a useful exercise that I have committed to memory. This consists of applying 8 requirements to any potential investment. They are as follows: ¤¤¤¤¤¤Please page forward to the next post¤¤¤¤¤¤

To: Ausdauer who wrote (11)	2/26/1999 1:30:00 AM
From: Ausdauer	Respond to of 194

The Round Table Ausdauer's Investment Strategy (page three) Evaluation of Potential Small Cap Growth Companies 1)Annual revenues of USD 200 million or less. 2)Daily dollar volume of USD 50,000.00 to 3,000,000.00. 3)Share price between USD 5.00 and 20.00. 4)Net margin of 10 percent or more. 5)Relative Strength (IBD rating) of 90 or more. 6)Quarterly revenues/earnings growth of 25% or more (year-over-year). 7)Insider holdings of 15 percent or more. 8)Positive cash flow. Promising prospects then must demonstrate consistent or rising margins, steady R and D expenditures, be taxed at a full rate, and not be issuing shares (diluting) rampantly. The balance sheet must be clean with cash on hand, little debt, and with accounts receivables and inventories growing proportionate to revenues. One must then evaluate cash flows and finances for the year to follow. If an investment passes all of these tests, the final assessment is the entry price. This is by far the most difficult task of all. The Motley Fool recommends essentially waiting for the PE/G ratio to fall to 0.5 or perhaps slightly higher. The beauty of this approach is that one can invest in a stock without really knowing what it is that the company does. You are investing essentially on fundamentals and you don't have to know a what an EEPROM or an ATA controller might be. IT REQUIRES BLIND FAITH IN THE COMPANIES PREVIOUS FINANCIAL SUCCESS. At the time I invested in SNDK I felt fairly secure that the majority of these conditions were met. Nonetheless, the floor fell out of the semiconductor market and before we knew it SNDK was selling below cash value. As Rex and others pointed out in early October many high tech companies were selling at bargain bottom prices. This leads me to one of my favorite quotes... "Buy when blood is running in the streets." §§§§§§Page forward to the next post.§§§§§§

To: Ausdauer who wrote (11)	2/26/1999 2:02:00 AM
From: Ausdauer	Respond to of 194

The Round Table Ausdauer's Investment Strategy (page four) Are there other investment strategies that work? No doubt. But I feel more confident in investing when I have done my homework. You gotta do the due diligence. At least if you fail it will likely be due to unforeseen or unpredictable factors rather than oversights or laziness. The Motley Fool method also hops right over another important investment tool. PERSONAL KNOWLEDGE AND EXPERIENCE !!! As I stated, the beauty of the method is the blissful lack of insight into the technical aspects of the company's products. I think it is essential to have some understanding of the relevance of the product that is driving the company's revenues. Personal knowledge and experience comes in two flavors. One's work environment and one's hobbies. When I think back to my medical fellowship in the late 80's and early 90's I recall all of the great companies who were producing pharmaceuticals and medical devices that we were prescribing without a second thought. The Mercks and the Pfizers, not to mention SciMed, Cordis, Medtronics, Johnson and Johnson, and Guidant. The list goes on and on. There are many situations where one's work environment gives valuable insight into the potential of a company's newest release. This information is readily available to each of us in our own professions. This leads me to another favorite phrase... "Shoulda, Coulda, Woulda" It is even more painful to recall personal interests that lead me right to unbelievable investments. These are also missed opportunities for me. They include... 1) My first computer by a little company called DELL in 1993. 2) My first computer software purchase in 1994 by a company called INTUIT. You know, that 30 dollar tax software program that you can buy. Then end up buying it every year thereafter. 3) My initial subscription to AOL in January of 1997 after my Mom and Dad showed me how they used it to "surf the net" on a 4800 baud modem over Christmas in 1996. (P.S. My Mom still types on a Smith-Corona.) That company was not likely to prosper anyway after it offered flat monthly fees and couldn't keep up with network demand. THE LIST GOES ON... This is called the Peter Lynch method of investing. "Buy what you know." I have come to one realization. I have freakin' good taste in consumer goods. §§§§§§Page to next post please§§§§§§

To: Ausdauer who wrote (11)	2/26/1999 2:26:00 AM
From: Ausdauer	Read Replies (3) \| Respond to of 194

The Round Table Ausdauer's Investment Strategy (last page) My personal feeling on being a shareholder: I generally feel like I should invest for the long haul. Investing is both a financial and emotional committment. An investment should not be something measured in hours, days, weeks or even months. My ideal investment portfolio: A collection of financially sound, competently run companies about to enter or just entering a sustained growth phase in a market segment that will sustain such growth for several years. Stocks where one feels confident enough that you need not check the share price but once every month or two. Sort of like a perennial garden with a selection of choice plants that require a minimum of maintenance and yield a bounty of magnificent blossoms. (getting sappy here) Things I have never done: shorted a stock invested in options General observations and favorite quotations: I always seem to hold onto my losers too long and sell my winners too early. When your really hot on the trail of a stock you think that the thing is going to go up 5 bucks before you put in your first buy order. Once you've bought it and it goes down 12.5 cents you think the bottom is going to fall out. "My favorite holding period is forever." "Pigs get fed. Hogs get slaughtered." "A rising tide floats all boats." "Revenues and earnings are listed in Canadian dollars." "Megatrends" "Megamarkets" Sincerely, Ausdauer