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URL:  http://boards.fool.com/gg-has-no-exit-strategy-19306820.aspx

Subject:  GG has no exit strategy Date:  7/10/2003  11:09 PM
Author:  captainccs Number:  8746 of 8764

The main problem that I see with the Gorilla Game is that it has no exit strategy. Moore and company were not thinking about stock market bubbles and crashes when they wrote the book. On the other hand, The Dow Theory talks mainly about the tide, how all stocks tend to rise and fall with the market. Any student of The Dow Theory would have exited the market some time in 2000 or 2001. Neither system is perfect but what would happen if you marry the two?

Some people still see the market as detached from industry and even if it is true in the short run it is false in the long run. I believe that in the long run you want to own the best companies in the economy, after all, they are the ones that produce the wealth.

If you strictly buy and sell as a trader, at the end of the day you might have made some good money, but you don't own any plant and equipment, you don't own the productive capacity of the economy.

On the other hand, of you strictly buy and hold, after you go through all your money you cannot buy any more (assuming zero margin). If you are still in your productive years, if you have an income producing job, then you can save part of your income and invest it in the market increasing your holdings of productive plant and equipment. But what if you are retired and you no longer produce an income? Where is the money going to come from to buy additional shares in productive plant and equipment?

I put all this in a blender and here is what I came up with: trade your way into long time holdings! Say you buy 1000 shares of a company @ $10 and then sell 900 when the price goes up 20%, @ $12. You have 100 shares left in your portfolio and, if you are paying $25 in commissions per trade, you also have a cash profit of $750. Caveat: this only works reliably in a bull market because the vigorish of the Stock Market Casino is in your favor. Caveat No. 2, this assumes that you are fairly good at forecasting short or medium term movements of the selected stocks.

The conventional wisdom is that you cannot forecast the market. I would say that it is probably true for a great majority of investors but people like Louis Navellier, who is basically a trader, have excellent track records. About a year or two ago I ran some computer simulations using real market data and my model beat the pants off all the indexes and even Warren Buffett. The data I used comes from one of the great bull markets, the decade of the '90s. What I see as important is that a strictly mechanical process beat all live investors.

As of a few weeks ago I'm testing the idea with real live dollars and real live stocks, ARMHY and MUSE. Wish me luck!

Denny Schlesinger
Caracas - Venezuela
denny@softwaretimes.com


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