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Author: BuildMWell Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41633  
Subject: Re: Testing the BMW method Date: 3/25/2006 9:18 AM
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"If a company you profitted from via the bmw method in the past, say MO or DUK, were to once again arrive at a -2RMS,(assuming nothing had really changed) would you be a little extra confident in its probability to perform well again?" - susiesfool

Yes, I find that it gives me a better confidence that history is repeating itself once again. You mentioned Philip Morris and I think it is a fine example. Take a gander at Mike's 30-year graph:

http://invest.kleinnet.com/bmw1/stats30/MO.html

In early 2000, the shares were at their low CAGR and I was a buyer at $24/share and continued buying all the way down to $19/share. The price went to $50/share in under three years. But, in 2003 you will notice that the shares dropped to an even lower CAGR level relative to the stock's history. Most people would never see the 2003 price of $30/share as being more desirable than a $20/share price three years earlier, would they? But, the BMW Method shows this to us very graphically. Seeing how the underlying CAGR of the business affects the prices explains a great deal about the correct logic in buying a stock for us.

To me, this is the perspective that make the BMW Method the most valuable to us. I was as excited about MO in 2003 as I was in 2000. The company was unchanged, but the price was actually again as cheap as it had ever been...even though the price was higher! Most folks do not think that way and that is why they miss the big picture.

It is rare that we get two such wonderful opportunities that quickly from the same stock. The nice thing about the second opportunity is your due diligence has already been done. You already have a working knowledge of the business because you have already been there and done that before.

"I know that dd and screening already increases the chance that a specific stock would have worked well with the BMW method in the past but might actually checking it for "past performance" be a good idea?" - susiesfool

That is what I look for. The low CAGR line is defined by the past low CAGRs. The more times the company hit the low CAGR and rebounded, the better. Look at a chart of 3M:

http://invest.kleinnet.com/bmw1/stats30/MMM.html

That is possibly the best example of a stock that continues to perform predictably over time. Now, that is both bad and good. If you like consistency, MMM is absolutely one of the best. But, it limits our potential for gain because it varies so little from the mean. It's consistency makes it attractive to very conservative investors, but it does not triple in price in a few years due to large price swings like MO. 3M still can be a great BMW stock for us...just not as impressive as others that are more volatile.

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