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Author: Larry01Gott Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3431  
Subject: Re: Only the PAST is known Date: 8/14/2003 12:50 PM
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Danish, you are RIGHT! We agree about many things, but happily for the sake of discussion, not everything!

"Only the PAST is known" you say, and I would add, not very accurately. The thing we know most accurately about the past [when we are talking about companies and stocks] is (are) the numbers. Still, figures lie, and liars figure. So we must be careful.

And then, there is this too:
As I graph, and add, and subtract, and rate, and rank, -- somewhere in the back of my mind lay terrorists, small cities destroyed, major earthquakes, smallpox and anthrax, happy things like that. I think that 9/11 changed the nature of the stock market, at least for a while.

"The stock market will always eventually go up" was the tried and proven motto. Now, I am not so sure. So, being unsure about the market as a whole, my major logistical change was to attempt to find companies that are doing so well that over the course of a year or two they could overcome a fickle market.

Implicit in that view is a very important concept: "That the results of individual companies are much more certain that the direction of the market." So lets play to our strengths, not our weaknesses.

That's one of the reasons for the "40% rule".
If the market goes down 40%, but my company's revenues and earnings -- and hopefully its stock -- goes up 40%, then I stand a chance on breaking even in a down market. When the nasdaq went from 5100 down to 1600, incredibly about 15% of the stocks went up. So I look for that kind of stock. (And those stocks shared some characteristics, not just randomly. Above all, they continued to have increasing earnings.)

So, back to a main point you were making. My view is:
"The future will be like the past, only not quite."

Apart from major global catastrophes, incrementally from year to year, this is mostly true.

And YES! Insecurity reduction. As I have already seen in your writings, you tend toward the LTBH view. In my years as an insecure investor, I played with my stocks way too much! (See my interview in my profile)
Now I am secure enough to sit and watch and wait, and to periodically adjust. And the numbers help me do that. And I am trying to impart some insecurity reduction to others, by showing stability (or lack thereof) in the numbers.

As you can tell, I am not a great fan of the "random-walk-efficient market" theory, where most of what we do to select good stocks is virtually worthless. But that does not mean that I believe in the "Logical market". I think the truth is somewhere between the two: Not as logical as I would like it to be, but more logical that the random-walkers would say it is, and much more fickle than I would wish.

And finally: many things about these companies cannot be digitized into numbers, ratings, and rankings. Factors such as mega-ideas (first, cellphones; then, video on cellphones), near-monopolies (Krispy Kremes), getting there first with the most and the best (UTSI) and so on -- such factors need to be added to the mix -- and may prove to be the very factors that eventually make the numbers go off the charts.

And so, I predict, and cross my fingers.

Larry

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