No. of Recommendations: 3

Monitoring LTBH Holdings

by xerohype

So you've bought a great LTBH stock, now what? Do you just lock it up and check on it in 20 years. Although that might work if you did an absolutely great job of picking your company (and had the advantage of hindsight), the best thing is to at least check your holdings once a quarter.

The Rule Maker criteria is a good way to follow your long term stocks. Look at their latest 10-Q or 10-K SEC filing and ask yourself these questions:

Are the gross margins improving, if not why not?

Is revenue growth accelerating, stalling, healthy?
(Note that companies in hypergrowth show > 100% year over year growth and consistent quarter over quarter growth, more mature companies should have at least 10% growth in revenues/sales, personally I like my companies to grow at least 20% year over year).

Are net margins improving?

Is the flowie stable or declining? A rising flow ratio is a big red flag, just look at what has happened to Lucent.

Is their cash position improving (Cash/Debt ratio)?

Are they investing in R&D or purchasing companies for R&D purposes (see CSCO, JDSU)?

Is the CKM improving? (or at least are they investing that money wisely into their business).

Gorilla Game strategy tells us to ignore most of the news out there on a company, most of it is noise, unless it affects their core business future. For example, when ERICY settled with QCOM in April of 1999, QCOM stock started to soar, also each time that RMBS wins or settles a lawsuit from a DRAM maker their core business gets stronger.

It is unclear whether the Intel news this week will affect the company long term, if AMD is beating INTC then it may have some impact. My view is that this news will be of little relevance for LTBHers, since Intel's core technology is not being replaced by AMD even if they do gain marketshare. Also INTC is transitioning into diferent business lines than just PCs thus widening their power base.

One of the other things you can do is to search the TMF stock board for the last quarter and find the most recommended posts. A lot of time you'll get a good sense of any important events that affected the company over the last 3 months.

The drill is fairly simple, make sure that your original premise for buying is intact, make sure that any short term trouble is just that, not something that may affect the core business. A disruptive technology, such as what word processors were to the typewriter, can knock down a leader.

Run your RM numbers, if they are stable or doing better then rest easy. If they are deteriorating then it amy be time to search deeper to find out why, if the reason is easy to explain (i.e. NOK transitioning to anew product cycle) then you are in good shape.

The great thing about LTBH is that if you did your original DD well then an hour a quarter looking at the 10-Q or 10-K numbers and some of the salient news for the quarter should be enough.

I can think of better ways to spend your time than to constantly watch the markets. Enjloy life, and don't fret about your long term holdings.

My next LTBH post in the series (the last one) will be on reasons to sell LTBH stocks.


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