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Here's my problem with hunches . . .


. . . it's September 1994, you take a look at SBUX and think ttm P/E of 67!? For a coffee shop??


Fast forward 12 years and it's been a 25-bagger. (BTW I have no opinion on SBUX and I've seen yours at 50 P/E so I'm guessing you're consistent at least). Hunches seem a poor tool to separate the Whole Foods from the Starbucks of the world.


I pick these two on purpose as the crux of the valuation for both seems to be: are they selling a fad or a sustained lifestyle? The patrons of Whole Foods do not equate it with Kroegers.


It seems 'hunches' like this are nothing more than shorting growth and going long value based on P/E and CAPS rewards you for doing this on a stock-by-stock basis; calling a 1% move in 100 stocks right gets you 100 points, calling the same move right by shorting a growth index ETF and buying a value index ETF with the same 100 stocks (or more) gets you 2 points.


I know that's how CAPS is played, but as they say 'don't try this at home!' First, it's far less efficient than the corresponding ETFs and second, you'll trick yourself into thinking you're a stock picking genius when in fact you're a poor constructor of indices.


PS. If it sounds like I'm jumping you or am down on CAPS, I'm not. I use CAPS and you in particular as a stock screen as I'm always looking for ideas. I just don't find that many issues mispriced enough to pass Graham's margin of error criterion to justify veering away from indicies and I don't want to make calls in CAPS I wouldn't make with real money - the last thing I need to start doing is deluding myself.

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