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LTBH part II

In Search for LTBH Stocks

by xerohype

Ok, so now you know that holding the best names for the long term is a great idea. Buying those leaders and letting compound can lead to early retirement, but the trick is where to find these names.

According to Peter Lynch, many of these leaders are just staring at you. Many have big recognizable brands. Go to any mall, where do people congregate?

How about some of these names:

Old Navy - owned by GPS

Home Depot - HD

Wal-Mart - WMT

Best Buy - BBY

Costco - COST

All of these are superior operations. Look for leaders in industries that are growing:

Networking: Cisco and Nortel

Wireless handset makers: NOK, ERICY and MOT


Think about the future, and how things are done and look to the strongest companies. Even in weak industries, like airlines, there are some best of class winners (LUV, for example).

A good way to look for names is to dig in the Mechanical Investing screens, I posted this on the MI board, on mining for stocks for LTBH using MI screens:

One of the keys to LTBH investing is to look for sustainable growth. Companies that own the technological propietary standards, are recognized as Gorillas by G. Moore, the largest ones, silverback gorillas such as CSCO, MSFT, INTC and ORCL own the toll bridges in their sectors. Every time you buy a computer you pay MSFT and INTC. As the internet gets bigger, routers are needed and CSCO dominates here. Want a database, ORCL is the place to go. These companies can then leverage their home market domination to enter new markets (unless the DOJ pulls you over for being a big bad monopolist).

Data storage will also be big, here there are two key companies that dominate: EMC and NTAP. As the internet grows the need for storage explodes, and these two are serving that market.

Think about trends going into the future, information demand keeps growing, who benefits from this? Will this go away, I think not.

One of the other concepts in Moore's books is that of the tornado. The way technology gets adopted, early adopters, those visionaries go first, then those who want practical solutions to problems (pragmatists) and then the big herd follows. This leads to an S curve, with 10% of the market taking a long time to achieve, but then sales explode rapidly into the steep portion of the curve, and then they level out as 90% of the market has been penetrated. This happened with cars, radios, TVs, computers, cell phones, and is now happening with handheld devices and the internet.

If you can find companies with >100% growth for 4 or more quarters, then you most likely have a tornado. Some of the next generation networking companies, such as JNPR, RBAK, SCMR, BRCM, AMCC are in the early part of the growth phase.

Once you've identified the candidates, it will be time to submit them to rigorous analysis. The RM criteria works very well for this. Fisher also has some very good subjective criteria for evaluating companies. Both can be applied as part of your tool kit to evaluate companies.

Fisher's 15 points:
RM 11 Steps:

Use these kits to evaluate the stocks you've recognized as leaders.

BTW, the RB Portfolio had a great article on when to sell LTBH stocks:
Consider Selling Long-term buy and hold
People treat the concept of "long-term buy and hold" as an investment technique, but it is an investment goal. Active trading will diminish returns, but a focused investor must continually reassess her positions to make sure that nothing has changed in the business and that her original investment thesis is correct. This is especially important for Rule Breakers.

By Brian Lund (TMF Tardior)
September 18, 2000

Good luck finding those jewels, they are all around you. Some vision is required, but everybody can do it.


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