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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Anton Posch who wrote (1590)	4/22/1999 9:28:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

"How does one keep the faith as a value investor these crazy days?" I have no problem with buying stocks based upon my perception of their underlying economic fundamentals. If I can't have faith in the laws of supply and demand being eventually vindicated, I can't have faith in anything. I admit to wishing at times I had been an "ill-informed" momentum investor way back when, who had done nothing but keep leveraging up in MSFT, AOL and DELL as they go higher and higher. But, I'm just not that way -- never have been and never will be. Contrary to Graham, my guess is that there are as many people who know how to make money at momentum investing as value investing. Likewise, there are people who know how to make money picking the next craze in music, movies, books, fashion. But, I'm not one of them, and have no illusions about ever becoming one. I'm glad I'm not 3 to 5 years from retirement though. In that case I might be in a real quandary. ""Case in point - my brother-in-law is busily trading internet stocks, borrowing up to the limits of his margin to do it. I tell him, "You're crazy. You're taking an unbelievable risk. You could lose a lot of money." His response - "I know. But I have $500,000 today that I didn't have 2 months ago." But, as you know, he doesn't "have" any money. What he has is: 1. a portfolio of stocks of economically all but worthless companies, no more than 1 of which, if that, will ever justify its current price (the rest will eventually be picked up for pennies per share by Disney, Time Warner, etc.); and 2. about $500,000 in debt, against perhaps $5,000 in "see-through book value". More colloquially, he has, in effect, win-place-show tickets on a number of horses in a race, in which the horses he has bet on are pulling further and further ahead of the pack. The problem is that virtually all of these horses are eventually going to turn around and head back to the paddock (and to the glue factory beyond), with sudden and alarming speed. They have already done this many times before, but so far have always "recovered" and re-taken the lead. So, it won't be obvious when the last turnabout is the one that's permanent. For the nonce, there are bigger fools waiting in the stands who will take these tickets off his hands at increasing prices. But, will he sell -- or will he keep "buying on the dips", until these horses drop in their tracks? "Doesn't it tempt you, even with just a small, tiny part of your portfolio, to get in on this madness?" No. As I wrote above, I sometimes wish I had been an unknowing momentum investor 4 years ago. But, as I wrote in an earlier posting, I never feel that way in the present tense. The higher the price that anything goes, the less I want to buy it. And, vice versa.