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No. of Recommendations: 11
my best investment has a PE of 46 and has increased by 6X since I bought it. It is also one of my largest holdings

Second is PE of 29.8 and is more than double. I knew when I bought it that it was overvalued but went ahead.

I have learned a lesson from these and from watching other overvalued stocks -- there is money to be made if you pick carefully and the company has a history of high growth and rare misses. But be ready for competition and reversion to lower PEs.

I would add that I have also seen that picking undervalued temporarily out of favor big companies with long records of successful execution and high cash flow but low to no growth prospects and low PEs has worked even better.

At present there is a lot of chatter across various Fool subscriptions about the power of the unfortunately named Spiffy Pop coined by David Gardner. It is a stock that in a short time increases 100% or more over your basis. The recent Spiffy Pop of Netflix has sent a wave of euphoria across Fooldom and there is endless speculation on how far it can run, how many times over its going to Spiffy Pop and what will the next newsletter pick be that Spiffy Pops. It's usually the high PE stocks that manage these big moves when the market finds a reason to love them. Amazon is another.

It's gratifying to watch a high PE, highly followed momentum stock pop, but I am finding through managing several portfolios with different mandates that the boring, low PE stocks bought at an advantageous pull back and put together in a portfolio has outperformed the market in the past two years and has outperformed some TMF Rising Star portfolios containing Spiffy Pops but unfortunately put together with other underperforming high PE, high risk stocks. This is a lot like what happens at the newsletters themselves. They have a few big winners but overall performance is compromised by a risky recommendation of a high PE momentum stock that fails.

Bottom line is I think the high PE stocks can do amazingly well but will be unable to help a portfolio of similarly priced stocks that don't perform. The market is quick to kill a disappointing high PE momentum stock. Apple is an example of a momentum stock bought at the wrong time and wrong multiple that has been a disappointment in a lot of portfolios. Better portfolios can be made from low PE, slow growth companies bought at bargains. They offer slow but predictable growth, dividends and lower volatility
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