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http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=8534144

http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=8536487

http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=8538896

http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=8542771

http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=8557439

"I am going to try to do some more research this weekend if I can find the time in between doing taxes and my seven-day-a-week job. Hopefully Qualcomm will help me get to the point that I work zero days a week."

And it did, Merlin, and it did....

http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=8698546


tekboy@Moore'stakeinalaterpost.com
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Enjoyed your post and its companion, "How Boards Can Beat Gurus". However, I'd go a step further and provide examples of how the market can beat both. For example, one quoted poster who provided an exhaustive list of reasons for buying QCOM wrote "I will place a market order tonight that will add Qualcomm to my portfolio tomorrow". That was on April 4th. The following day, QCOM averaged 140.

There's no need for me to repeat anything I've said regarding market sentiment. Just providing food for thought and an alternative view in reference to those who think that while entry point may be irrelevant to the GG strategy, it is also irrelevant to returns.
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dbphoenix:

Enjoyed your post and its companion, "How Boards Can Beat Gurus". However, I'd go a step further and provide examples of how the market can beat both. For example, one quoted poster who provided an exhaustive list of reasons for buying QCOM wrote "I will place a market order tonight that will add Qualcomm to my portfolio tomorrow". That was on April 4th. The following day, QCOM averaged 140.

There's no need for me to repeat anything I've said regarding market sentiment. Just providing food for thought and an alternative view in reference to those who think that while entry point may be irrelevant to the GG strategy, it is also irrelevant to returns.


I think you're looking at the wrong year. The post is dated Sunday, Apr 4, 1999. I checked the daily price data using MSN MoneyCentral. The close on QCOM on April 5th was 18.609 (after split adjustments). This was after a significant runup in March 1999. On April 4, 2000 QCOM closed at 146.625.

Brad
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You're absoluely right, Brad. A sloppy error on my part. However, my essential point that the market is smarter than either boards or gurus remains. Anyone buying at 18 now has a triple. However, to drop from a nine times investment profit to a three times investment profits suggests that giving the market its due is not outside the bounds of prudence.
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db,

the guy who happened to start his QCOM position back on April 4, 1999, after doing the masterful DD catalogued in those posts, was one Mike Buckley, who's been known to post around here occasionally, I believe.

Earlier this spring, when everything was tanking, I made some grumbling noises about how in retrospect I was stupid to have gotten caught up in the bubblish hysteria and not taken some profits--and how I attributed that to newbie naivete, and wished that I had had the valuation skills and experience of a Mike Buckley or a Bruce Brown to help me make reasonably accurate timing decisions.

This generated quite a heated debate, the upshot of which was that the very people I was so jealous of swore that they had never been able to do as well trading as they did LTB&H, and that the only way their skills came in handy was in trying to find somewhat reasonable entry points and in making relative valuation decisions among otherwise equally attractive investments. They also stressed that with the kind of excellent companies of concern to this thread, the potential for breaking good news was ever present, making it especially difficult to time their investments well by using any kind of market-based or technical analysis.

In one sense, therefore, you are correct, in that entries at auspicious times and prices are very profitable, and highly recommended. But--first, for a true LTB&Her the fact of the entry eventually ends up mattering far more than the price of the entry, and second, some of the wisest and most experienced folks around are surprisingly modest about their ability to do more than find great growth stocks and hang on tight for dear life.

Unfortunately the Silicon Investor website is down at the moment for repairs, but if I remember and have some time later on I'll cross-post one or two of Buckley's less fatuous comments on the topic...

prosperous investing,

tekboy
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Unfortunately the Silicon Investor website is down at the moment for repairs

So you thought you'd try the chimp's product in the meantime. <ggg> Glad to see you posting over here.

Tekboy, I've dropped you in my favorite Fool's list. It's been a long time since we were on the JDSU board talking gaming about Sun Microsystems.

I think we'll simply have to discount the November to March move in the overall market not to mention the many stocks that participated with the ebb and flow. It's hard to draw any conclusive evidence from that period of time until we are a few years down the road to see exactly what the end result will look like.

If you look at stocks like Siebel and Brocade in terms of where they are today in relationship to the steep sell off, unclewest's road trip would result in the conclusion that nothing even happened. (He's a poster on SI who was on the road for a couple of months with his wife in a camper who missed the correction and returned home to find things pretty much as he had left them.) I did add to my positions during April and have been more than surprised as to the prudence of that decision with the recovery in some of those positions.

We cannot apply any 'general theory' to all investments. The case for building positions in great companies for the longer haul will reward the tortoise. Even if the price of lettuce might be higher due to the overall lettuce market at the time. However, the tortoise has to eat a lot of lettuce over the years to reach the goal.

Can you tell it's time for vacation?

BB



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<<the upshot of which was that the very people I was so jealous of swore that they had never been able to do as well trading as they did LTB&H>>

I have no interest in instigating - much less participating in - any "heated debates" on the subject of LTBH vs timing. My results with timing have been far superior to what they ever were with LTBH (or would have been with LTBH). As I point out on the market timing page at my website, there is no natural superiority between one approach and the other. What is best for the individual is what most closely suits his psyche (a high-rish approach, for example, no matter how demonstrably superior, is inappropriate for anyone with little tolerance for risk).

<<and that the only way their skills came in handy was in trying to find somewhat reasonable entry points and in making relative valuation decisions among otherwise equally attractive investments>>

This is the key sentence: "reasonable entry points". What experienced investors tend to forget is the number of inexperienced eyes which read their words. In a sense, message board posts become an almost private communication, particularly if they are cloaked in jargon. And when one comments that certain stocks are buys at any price, he needs to remember who will be reading that and perhaps taking it to heart, even though he may not have meant the comment to be taken literally. Taking the position that each individual must "do his own homework" does not absolve one from the responsibility for the ramifications of what he writes, though it may not be a legal one. And even though there seems to be a grudging admittance that perhaps the boisterousness regarding QCOM was misplaced near its highs, the same attitude has begun to develop with regard to RMBS (lessons are repeated until they are learned).

As for valuing something according to whether we've seen it, heard it, eaten it, been there, or can do it (or not), I am the first to admit that I am a terrible daytrader. However, I am more than willing to agree that the profits in daytrading can be impressive if one is suited to it. The fact that one knows little or nothing about timing does not mean that there's nothing about it worth knowing. The fact that one can't do something doesn't mean that it can't be done or is not worth doing. There are stocks in my portfolio that have been there for years, but that doesn't mean I wouldn't sell them tomorrow if technical conditions warranted. By the same token, my profits in cyclical stocks - such as semiconductors - are far superior to what they would be if I were simply to hold them throughout. And recent market activity has demonstrated again that even those stocks which aren't as subject to cyclicality do go through periods of overenthusiasm and react accordingly.

Again, choosing a reasonable point of entry and even of temporary exit is not only not impossible but not even very difficult. The fact that one might not have time for it or interest in it is a completely separate issue.
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dbphoenix,

I'm not going to get into a discussion about market timing vs LTB&H either, but I'd like to ammend your comment as follows:

What is best for the individual is what most closely suits his psyche

I'd change that to: What is best for the individual is what most closely renders the desired results.

--Mike Buckley
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<<I'd change that to: What is best for the individual is what most closely renders the desired results.>>

True, though he's unlikely to reach those desired results if he's continuously struggling with his chosen strategy. For example, mutual fund devotees rarely do as well as the fund itself because they so often redeem their shares when the market tanks. They then wait to buy back in until the fund has regained most of its losses. Or buy another fund which is already at or near full value. In a sense, they are "closet timers". They just don't do it very well. Though I may be missing your point. I've been known to do that.

There is something for just about everyone at TMF, from daytrading to DRIP. If one is successful with his chosen strategy, it's easy to believe that the reason for his success has to do with the strategy than with his personal compatibility with the strategy, a primary reason for so many flamefests (anybody who isn't using [fill in the blank] is an idiot). But the power of compatibility is far greater than most people realize, at least partly because one's decisions are so much more likely to be the right ones when he isn't tied up in knots with fear or anxiety or greed.

I think it's great if an LTBHer is happy with his results, and that isn't in any way condescending. Life's too short to be obsessing over one's portfolio during every waking minute. But not everyone is comfortable with the amount of faith that LTBH requires, and there are many other choices, not all of which are incompatible with GG investing.

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dbphoenix,

The only reason I'm continuing this discussion is because of its context relative to gorilla gaming.

But not everyone is comfortable with the amount of faith that LTBH requires, and there are many other choices, not all of which are incompatible with GG investing.

By definition, gorilla gaming is LTB&H once consolidation of the portfolio takes place. Anything else isn't compatible with gorilla gaming because it isn't gorilla gaming. It might be wildly successful but it ain't gorilla gaming.

And I really do wish you'd show the tax impact. It's not an opinion -- it's a fact -- that the taxable account using anything other than the longest of long-term strategies has to outperform on a pre-tax basis the LTB&H strategy in order to achieve the same after-tax results. It's my opinion that people who don't understand the magnitude of overperformance required to do that will be mislead by the generalized statements you're making.

--Mike Buckley

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<<By definition, gorilla gaming is LTB&H once consolidation of the portfolio takes place.>>

Until the fundamentals change. But creating the portfolio in the first place requires that one buy the stocks under consideration, and Moore has acknowledged that even gorillas can be temporarily overvalued. Which is why he recommended to the email group that they let the market settle for a few months before jumping back in. That may be a crude form of timing, but it's timing nonetheless.


<<It's not an opinion -- it's a fact -- that the taxable account using anything other than the longest of long-term strategies has to outperform on a pre-tax basis the LTB&H strategy in order to achieve the same after-tax results.>>

Naturally. But much depends on the gain one has - assuming one has a gain - and on his tax bracket. One must also consider the inflation costs and opportunity costs to one's portfolio if he is holding stocks which are below his purchase price.

<<It's my opinion that people who don't understand the magnitude of overperformance required to do that will be mislead by the generalized statements you're making.>>

Undoubtedly, if the statements are taken at face value. I'm not concerned with teaching anybody how to time the market or how to time entry into a stock on this board. That would be about as inappropriate as inappropriate gets. But I've been on the lookout for gorillas for years and thought Moore's book was important. And I consider statements such as "gorillas are always undervalued" and "no price is too high to pay for a gorilla" to be pretty general themselves. When one couples such statements with all the "likely tos" and "might bes" and "ought tos" that crop up in posts, then one ought to at least consider whether the price he's being expected to pay for a given stock is fully justified.

Investing now is not what it was ten years ago or even five years ago. "Investors" are no longer willing to wait for earnings, or even the prospect of earnings. Thus prices are driven up to levels that can't possibly be justified except in reference to a timeframe that is so far off into the future that the entire technological landscape may be unrecognizable. Similarly, GGers are more and more eager to get in "early" and buy what may only be potential gorillas - and perhaps not gorillas at all - long before they've shown the requisite characteristics of a gorilla. Granted, the basket approach is supposed to address some of these problems, but one must be reasonably sure that the stocks included are in fact candidates for the basket. And unless the stock is selling at an extraordinarily low price, the less information he has, the more risk he assumes.

I have no interest in rewriting Gorilla Gaming. I think GG is just great. But when I see newbies begin to take on that religious fervor that persuades them to take risks that they perhaps have not carefully considered, I'll raise my little yellow flag and suggest that they perhaps should slow down and think a bit more carefully about what they're doing. Sounds patronizing, I know, but I'm sure that I'm on more than one Ignore list.
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This is the key sentence: "reasonable entry points". What experienced investors tend to forget is the number of inexperienced eyes which read their words. Taking the position that each individual must "do his own homework" does not absolve one from the responsibility for the ramifications of what he writes, though it may not be a legal one.

I should be busy adding the final touches to a project of mine, but I thought some of your views warranted refutation. This is not a professional association where we are licensed investments advisers. Nobody that joins the Fool and reads the message boards should ever be led to believe that. Adamant thoughts and discussion of individual companies, especially the type of companies that we discuss on this board, are tantamount to helping each other as Fools learn about IPR and technology adoption life cycles. That's the most important thing before price or underlying 'value' of the particular security even enters the picture. Nailing the IPR down and the tech's possible position to participate in a gorilla game - as well as understanding the technology adoption life cycle - is numero uno. Without that - we have no 'game'.

Once that work is done it pretty much boils down to a "do your own homework" which, when translated to me, means - 'pick your own entry price that matches your comfort level and knowledge of investing'. How many of us know what that is? I never forget the fact that the gamut of investing experience runs deep and wide on this and other boards when I submit a post. I also never forget the fact that we all make mistakes along the way in our investing. It cannot be avoided.

Previously, I'd provided a link and quote to one of the co-authors of The Gorilla Game who suggests the early candidates are to be bought and added to on dips without too much concern for valuations as the technology adoption life cycle progressed, it would all work itself out. As the technology adoption life cycle progresses, the consolidation into the dominant players will take place and through it all, the 'theory' is you will still come out ahead in a significant way. Geoff Moore is not an investor in individual securities by his own admission. His personal money is managed by a professional and according to what he has stated includes some funds. The other author specializes in venture capital.

Their focus is really on the game in technology and why certain companies will dominate and provide returns that dwarf the majority of other investments. They use the case history of some very important technology adoption life cycles. There are more going on as we speak. Regardless of current valuations of some of the most promising candidates in those games - some of them (not all) will make out like gangbusters. It's no secret. The study they did in the book was not unique knowledge to only those three authors and the readers of the book. It was nice of them to put it in a condensed form for all of us to use as a reference.

A look at Cisco, Intel, Microsoft, Oracle, EMC, Dell, AOL or a 'younger' crop of companies like Siebel, i2, Yahoo!, Qualcomm, Brocade, Network Appliance, Gemstar, Redback, Juniper, Sycamore, JDS Uniphase as well as many others go a long way to suggest there might be something to the theory. We can sit here today, in retrospect, and say:

'Gee - Cisco was really undervalued in 1990 - 1994 even though I paid those absurd prices back then'.

'Microsoft was a steal in 1987 - 1990.'

'EMC was a gift even though my broker told me I was nuts for paying such a high PE in the early 90's.'

'I could have had i2 for $9 in 1999'.

And on down the list.

We'll know more as time unfolds. One thing I'm certain about is this: there will always be an environment to produce a technology adoption life cycle that just might create a gorilla. It's rare, but the few that will emerge along the way will be hunted down and added to portfolios with a lot of regard to the IPR over the price issue. A lot of money can be made in the well executing value chain members as well, so I don't want to say it's a gorilla or nothing.

Although the ideal would be to combine the IPR issue with price, we need another ten to twenty years to have enough information to answer many questions we have today. Never has it been stated that risk was not an element. Never. It has been stated that the risk aversion might be a level that a long term investor would be able to tolerate by holding a well balanced portfolio of the dominant companies. Yet, risk will never be eliminated. Part of that risk is the price you pay for an equity in combination with the time frame you have chosen for investing.

There are stocks in my portfolio that have been there for years, but that doesn't mean I wouldn't sell them tomorrow if technical conditions warranted.

I assume you mean TA conditions. That's a strategy that might work well for you, but should be stated with just as much of a disclaimer as somebody who says they think a particular stock looks like an attractive entry point. History does remain on our side for long term investing to be able to create enough wealth to meet the majority of our financial goals in life. I'm a tortoise and although I'm well ahead of my goals thanks to the previous decade - I'm going to remain a tortoise. Time is more important of a factor in the equation than most give it due. The majority of investors in a company like either Qualcomm or Rambus have not yet even given these companies one year of time yet. One year! That's nothing when it comes to investing. Let's talk three, four, five, seven, ten years and see if we look back in 2000 and see any value. Once again, if one has a balanced portfolio a single holding should not hold one back from achieving their long term goals.

By the same token, my profits in cyclical stocks - such as semiconductors - are far superior to what they would be if I were simply to hold them throughout.

That's impressive considering Intel's 29 year return. Or 19 year return. Or 9 year return. Or 9 month return - 78% by the way. ;-)

Gorilla gaming is not a trading game. Years have to be devoted to it for receiving the financial rewards. Micromanagement is not part of the equation outside of consolidating the basket players into the dominant player once enough evidence is present to choose it. I know you mentioned you had no desire to debate timing vs. LTB&H. Until I have proof in front of me that refutes timing with taxes was able to beat the long term returns of Cisco, Microsoft, Intel, AOL, Dell, Oracle, EMC, JDS Uniphase and some others now and in the future - I have to continue to believe the gorilla game in high technology has a necessary adaptation to long term buy and holding of the companies within their respective technology adoption life cycles.

Again, choosing a reasonable point of entry and even of temporary exit is not only not impossible but not even very difficult. The fact that one might not have time for it or interest in it is a completely separate issue.

That's an interesting observation. However, it has very little to do with gorilla gaming. I'm not sure how you would feel comfortable saying a comment that choosing points of entry and exit as being 'not even very difficult'. That seems to be rather incongruous with what we are trying to accomplish on this board.

BB
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dbphoenix,

And I consider statements such as "gorillas are always undervalued" and "no price is too high to pay for a gorilla" to be pretty general themselves.

And ill-advised. I always objected to those parts of the book and have written my public objections many, many times. On that we completely agree.

--Mike Buckley
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Excellent post. I hope that it is somehow referred to by any newcomer to the board, perhaps by the FAQ.

<<I never forget the fact that the gamut of investing experience runs deep and wide on this and other boards when I submit a post.>>

My experience has been that in your case and in the case of Mike Buckley, this is true. It may also be true of others (I don't keep track by name), but not of everyone.

<<A look at Cisco...as well as many others go a long way to suggest there might be something to the theory.>>

To the contrary. One can go back much further than Cisco to find evidence to support the "theory" (and I would elevate the concept to a level much higher than that of a theory). As I've said before, if the search for companies such as these were not an integral part of CANSLIM, I wouldn't even be interested in the subject, or the book.

<<Yet, risk will never be eliminated. Part of that risk is the price you pay for an equity in combination with the time frame you have chosen for investing.>>

Well put.

<<History does remain on our side for long term investing to be able to create enough wealth to meet the majority of our financial goals in life>>

Yes and no. There's no evidence to support the idea that long-term investing in and of itself is superior to any other strategy, though anyone who began investing since the last bear market ended in the late 1980's would have a very different view on the subject. But if one buys just the right stocks at just the right time, the probabilities are that his portfolio will outperform the market averages, perhaps to a substantial degree. If one buys an index instrument of some sort, which is what most claims of the superiority of LTBH are based on, and if the timeframe is long enough, the probabilities are perhaps even greater, though none of this has ever been the subject of a comparative study except in hindsight.

<<I'm not sure how you would feel comfortable saying a comment that choosing points of entry and exit as being 'not even very difficult'. That seems to be rather incongruous with what we are trying to accomplish on this board.>>

I have no interest in sabotaging the board. And my posts have been few and far between. But if someone who is new to the markets asks if a certain stock is currently over-priced, or if a stock currently in freefall is a "buy", I don't think any permanent damage would be done by reminding that beginner of the nature of risk and risk tolerance and of the necessity of evaluating any potential purchase within the context of his investment goals and, as you say, his timeframe.

I may be ultra-sensitive to this issue because I work with so many beginners. And I don't roam the boards making obnoxious remarks; the boosterism of stock boards is indefatigable. But an occasional reminder to a beginner to slow down and think should not be intolerable.
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<<On that we completely agree.>>

I'm glad. You're very bright and very well-spoken and I have no interest whatsoever in arguing with you. But then these kinds of discussions aren't what they were five years ago, and for some reason people are just more prickly in general. I appreciate the time you've taken to respond. Ditto for Bruce Brown.

I had no idea that this would go on as it has. Taking up so much board space was not my intention. But, on the other hand, there isn't much going on, is there? Though GMST, as TinkerShaw points out, and ELON may provide some interest.

Time for my pint of Mississippi Mud.
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Bruce Brown asks:

That's impressive considering Intel's 29 year return. Or 19 year return. Or 9 year return. Or 9 month return - 78% by the way. ;-)

In Response to Db's comment, By the same token, my profits in cyclical stocks - such as semiconductors - are far superior to what they would be if I were simply to hold them throughout.

So, it got me curious. Just what has the CAGR (Compounded Annual Growth Rate) for INTC, given certain time frames, been?
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Stop for a second and write down what you think the CAGR has been for INTC since its IPO date, again 20 years ago, and again 10 years ago.
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Seriously, write down an educated guess. This is the long standing King of the techs since 1/7/72.
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I am putting in the extra lines so that you all will have to scroll down, making it a little more difficult to cheat.
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Assuming a trader is in the 39% tax bracket, because of taxes they only carry over 61% of their profits (after commissions) each year for their own CAGR. The trader then must attain a return that is 1.64 ($100/$61)X the return of the Long Term Buy and Never Sell.

For clarification, the $100 is profit before taxes, and the $61 is profit after taxes.
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OK, enough of the irritating DOTS already!!! Here we go
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Of course all prices are split adjusted. Price as of today is 131 3/4.

IPO date = 1/7/72
Price = 1/32
Years = 28.58
CAGR = 33.87%

Date = 6/27/80 (Closest Friday, the 29th was a Sunday)
Price = 11/16
Years = 20
CAGR = 30.05%

Date = 6/29/90
Price = 2 15/16
Years = 10
CAGR = 46.28%

The CAGR for the last ten years is about what I expected, but the other two time frames are definitely not as high as I would have expected.

I believe I remember BB saying that Intel became a Gorilla in the early 80's. What would a trader have to annualize to beat it?

30.05% (from 1980)* 1.64 = 49.3% (After Taxes for Trader)

Just for giggles, take Intel in 1990, then:

46.25% * 1.64 = 75.85% (After taxes for Trader)


I have only been a disciplined trader for roughly a year and a half (Have invested for 4 1/2), and it has been during what has been one of the strongest bull run ups in history. So, that would also lead to no proof as to whether trading can attain better results than GG. That being said, it just does not seem to be an unachievable task. My own personal CAGR since early '96 after all taxes and expenses beats that of INTC since '90.

I know that Bruce adds to his Gorillas often, so this may make it difficult to determine the true CAGR, I am not sure about Mike. I understand this is personal, but could you give a ballpark number on how long you have been GG'ing, and how much of GG that you attribute to your LT results? I am sure you were both doing your own versions of GG before the approach became known.

I do not present this as an argument that Trading is better than the GG approach. None of our results would be anywhere near scientific. Trading can not be drawn and quartered to be measured up as easily as GG can. It is safe to say that Trading has so many more variables to throw into the equation to determine what a trader is, and how one becomes successful with it.

Curiousity got the better of me when Bruce mentioned INTC and wondered what the LT returns have been on it.

I have been a lurker, so I wanted to add thanks to all of you on this board that provide so much of your time to get your very insightful GG information out to others for sharing, and building upon.

Prestone
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We can sit here today, in retrospect, and say:

'Gee - Cisco was really undervalued in 1990 - 1994 even
though I paid those absurd prices back then'.


Bruce -

I'll chime in here.  As you probably know the theory on 
how to value these companies is becoming an ever larger 
thorn in my side, one which is slowly turning me to
investments well outside of tech.

Let's take a look at Cisco P/E and P/S multiples 
(source: Quicken.com).


       P/E  P/S
1990    9    4 
1991   27    7
1992   37    9 
1993   36   10 
1994   20    4


As a side note, I wonder where Moore came up with the
P/S in the teens rule of thumb for Gorillas.  Cisco 
did not command an end of year P/S in the teens until
1999.

My point being that in Cisco you had clear hypergrowth
in arguably the most important infrastructure role in
tech for the 1990's.  What is it about Brocade's 
hypergrowth which commands a P/S over 130 and a P/E
pushing 800?  Somebody please give me a YPEG which 
suggests this company will grow 800% per year for 5 
years.  Redback's P/S is over 140 now.  So much for it
being the "value play" among next gen networks.

I guess I just don't get it.  These are great companies
in a great position, but I don't understand the price
at all.  Apparently the market does (for now) because
they keep going up and up...  Bottom line for me is
we have seen this sort of hypergrowth in the last 5-10
years, and it has never commanded such a rich multiple.

I'm not sure if you were making the point of Cisco 
being "overvalued" from 1990-1994 or not.  I wouldn't
doubt many analysts claimed it was.  But the numbers
themselves tell you it wasn't, even then (well before
our "new paradigm" way of thinking).  The trailing Peg
was well below 0.5 most of the way.  In retrospect it
was damn undervalued.  Not sure I'll ever be able to
say that about Juniper Networks.

Fool On.

DP




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Prestone,

Assuming a trader is in the 39% tax bracket, because of taxes they only carry over 61% of their profits (after commissions) each year for their own CAGR. The trader then must attain a return that is 1.64 ($100/$61)X the return of the Long Term Buy and Never Sell.

I don't have the time to test that assumption in a spreadsheet, but I don't think you're right. The reason I think that is because I did construct a spreadsheet awhile back that assumed 15% annnual pre-tax growth. One investor sells every two years. The other holds for 30 years before selling. Though both investors were enjoying the benefits of long-term capital gains, the investor waiting for 30 years to sell had an after-tax value that was 70% higher than the other one.

If I'm right that your assumption is wrong, it's because you are only taking the taxes into account. I don't think you're taking into account the compounding of all those lost funds paid to the taxes.

If you want to construct a spreadsheet to test your mathematical assumption and show me that I'm wrong, I'll be open-minded. And if you want me to e-mail my spreadsheet described above to you as a point of departure, I'm happy to do so.

As for my experience using gorilla-like strategies before the book was written, I will agree that I've bought the right stocks for the wrong reasons and the wrong stocks for the wrong reasons in the past. I've been very fortunate that I survived those episodes in good financial health. :)

--Mike Buckley

P. S. Please, that offer is only good to Prestone. I'm swamped with stuff and don't have time to handle all the e-mail I fear I'll get.

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As you probably know the theory on
how to value these companies is becoming an ever larger thorn in my side, one which is slowly turning me to investments well outside of tech.


There are investments outside of tech? Hmmmm.
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Oh goodie, there are lots of juicy tidbits on the GG board this AM.

Padavona wrote:

My point being that in Cisco you had clear hypergrowth in arguably the most important infrastructure role in tech for the 1990's. What is it about Brocade's hypergrowth which commands a P/S over 130 and a P/E pushing 800? Somebody please give me a YPEG which suggests this company will grow 800% per year for 5 years. Redback's P/S is over 140 now. So much for it being the "value play" among next gen networks.

Cisco's y/y revenue growth after going public in 1990 for the router market was this for the four quarters:

March - 132.6%
June - 112.5%
September - 132.6%
December - 173.7%

Wellfleet's for 1990 was:

September - 240.6%
December - 239.2%

In the third networking tornado for Cisco which began by the numbers in Q1 of 1994, they had purchased Kalpana and Crescendo in Q3 of 1993. They also bought two private companies for the LAN switches space. Grand Junction and another. These acquisitions in combination with in house developed LAN switches finally showed this kind of revenue growth in 1996 and 1997 for a royalty game:

1996

March - 313.8%
June - 361.4%
September - 250%
December - 157.1%

1997

March - 108.3%
June - 81.4%

At this point Cisco had the dominant share in the LAN switch market and the hypergrowth had slowed. Their position was King, not gorilla in this royalty game.

No need to point out the intelligent hub and remote access tornado activity as well that Cisco participated in, as the routers and LAN switches had the most impressive y/y hypergrowth due to the acquisitions and because they became the dominant brand.

You'll want to try and compare the types of revenue growth that certain companies in the IP/Broadband "next generation network" space are experiencing for their respective technologies. I believe you will find a lot of 350% to nearly 500% y/y numbers at the moment. Does that mean they deserve a higher multiple than Cisco did in 1990 for the 112% - 173% y/y revenue growth in the router market? You think not, but the market seems to be thinking they deserve something. Even if you strip out the momentum players from all of the candidates, the multiples would still be very rich. I'm realistic and cannot argue with that if I compare it to some other investments that I hold. I'm not sure I would use a straight analogy and say, let's see, Q2 y/y growth for Cisco in 1990 was 112% and the market multiples were x and x. Brocade's most recent Q y/y growth was 4 times that amount. Therefore, the multiples should be 4X and 4X. I don't think it works that way. Each case is unique. Very unique. Toss in the historic return for early Cisco investors who held and you're not going to find many complaints. I can't predict I will say the same thing 9 or 10 years from now for Brocade, but I'm willing to see.

Brocade's management sees triple digit growth for their current market into 2003 using conservative figures. Who's to say they will not enter, like Cisco, via acquisitions or in house product design other tornado markets like Cisco did in the 1990's? If there is any management team that has studied the chasm, tornado and standards game better than Brocade - I'd like to meet them. We cannot predict 5 years out from now without getting into some very serious witchcraft and WAG'ing. It's a current Wall Street darling and one of the most successful IPO's of the 1990's. Part of that is because they waited to go public until they were up and running with a healthy balance sheet in an industry poised for some serious growth. All of that being said, I'm not implying it is a 'safe' investment. Risk cannot be removed from any investment.

I'm not here to justify the current market multiples of my personal investments. However, I would point you to look at the y/y growth for any you question as well as the competitors and the potential market space of each technology. These are real games going on right before our eyes. It's the end win that the basket approach allows the winner to be 'captured' in one's portfolio. My thought is that the way to administer this strategy is, of course, to have shares of the company in my portfolio. My wife is a recent investor as well because Mr. Ashok Kumar downgraded the stock. I wasn't expecting it to double in a month, but did expect the longer term to do quite well. What the share price does between square one and square ten doesn't concern me because I cannot predict that, nor can I time that outside of the opportunity presented by a downgrade in a nervous market. It's a high risk/high reward proposition, but using the basket strategy with eventual consolidation allows some 'protection' if theory proves to be correct. By the time Brocade had its IPO last year, I saw enough evidence to go with it. I've been watching the others closely and have posted Q results on this board of all the players, but many other elements still keep me out of them at this time.

I did the same with Siebel and i2 in 1998. Too much evidence for me at those early dates that they had carved out their respective niches in a healthy enough of a way to maintain longevity.

You can't forget that we were in a Gulf War and a bear market in 1990-1991 when Cisco had their IPO. It was a dismal two years of returns for most investors including myself. Following that we had interest rates rising into 1994 before that cycle finished and launched the end of 1994 - 2000 market. There are a lot of elements to weigh in as you try and study and compare things. I continue to believe each story, each technology and each company are unique instruments of study. I don't want to rush to make conclusions that everything needs to fit into the same mold.

To satisfy dbphoenix, I will say that I've put my real, hard earned money to work in a number of these candidate companies with very rich market multiples. That is not in any way an endorsement for others to do so. In fact, we're in times like none other. Aggressive growth is aggressive growth. The risk tolerance must fit the profile of the investor and the portion of one's portfolio that is devoted to it must be a cautionary portion that meets one's strategy. Even though I have no idea what it is going to be, I'm more interested in the next 5 years of growth for companies like Brocade, Redback, Juniper and many others. That's not to say this quarter or next or last are not 'check points' along the way which I glance at to see how things are progressing. I do, but the focus is longer. I have a core portfolio of other investments that carry a lower degree of risk. Some would argue it's because I'm not confident enough to swing for the fences with just a few investments. There might be a degree of truth to that. I can tell you I wouldn't feel comfortable holding only 6 stocks that all had market multiples like Brocade, or Redback, or i2, or Ariba, or Juniper, or Foundry. I can also say I wouldn't be comfortable reaching some of my goals holding only stocks that had market multiples with a P/E's of 12-15 and PSR's of 1 - 5.

I cannot micromanage because of the valuations. I 'want' them in my portfolio for the games being carried out. I did add to my positions when many of them lost well over 50% of their value not too long ago. Having them out of my portfolio doesn't allow me to play the strategy. Not all of them will win. Some will. That's the nature of the beast. I'm a tortoise who's willing to wait it out on all of them to see what develops. I will make mistakes along the way.

I'm not sure if you were making the point of Cisco being "overvalued" from 1990-1994 or not. I wouldn't doubt many analysts claimed it was.

There were analysts screaming from the top of high rise office buildings how overvalued Cisco and other tech stocks were at the time. They were on CNBC, they were in the papers and in the monthly periodicals. They were calling their clients on the phone and screaming churn baby, churn. I know - I had a broker in the early 90's. I lived in the Bay Area at the time and Cisco was more than a common word floating around, believe me. There were analysts screaming that the PC era was over. Dead gone and decomposing. Knock, knock said the Internet in 1994. The Internet continues to be the largest gorilla we've all laid our eyes on in our investing lives. Too bad we can't buy shares....

BB



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Prestone wrote:

I have only been a disciplined trader for roughly a year and a half (Have invested for 4 1/2), and it has been during what has been one of the strongest bull run ups in history. So, that would also lead to no proof as to whether trading can attain better results than GG. That being said, it just does not seem to be an unachievable task. My own personal CAGR since early '96 after all taxes and expenses beats that of INTC since '90.

Yes, you have only be trading for a very short and volatile time frame which even I was able to time quite well using no exotic strategy in the autumn of 1998. When the capitulation and lowering of interest rates signaled a unique opportunity I hadn't seen in the previous 15 years, I actually used margin as a strategy. However, I'm not looking or expecting that type of a scenario to occur very often. Maybe a blind squirrel would have had little trouble snagging over 100% returns in a short time frame like that (after taxes). However, the blind squirrel understands that they will not be able to repeat that on an annual or binannual basis - no matter how appealing it may seem.

I know that Bruce adds to his Gorillas often, so this may make it difficult to determine the true CAGR, I am not sure about Mike. I understand this is personal, but could you give a ballpark number on how long you have been GG'ing, and how much of GG that you attribute to your LT results? I am sure you were both doing your own versions of GG before the approach became known.

I wouldn't say 'often'. My wife and I have a dual income scenario and have had since the late 80's. We save on a regular basis and continue to put that money to work quarterly. No matter what happens in the markets, we will continue to use this strategy. We really live 'below our means' in a lot of ways because we're pretty happy and comfortable. This, in spite of a few highly successful investments in the past decade.

I do not present this as an argument that Trading is better than the GG approach. None of our results would be anywhere near scientific. Trading can not be drawn and quartered to be measured up as easily as GG can. It is safe to say that Trading has so many more variables to throw into the equation to determine what a trader is, and how one becomes successful with it.

No need to determine that one is better than the other. What is to determine is which strategy is one going to take the time to learn and use. Or how is one going to learn both in an effort to combine them and maintain success to reach one's goals. Each investor has their own discipline.

Curiousity got the better of me when Bruce mentioned INTC and wondered what the LT returns have been on it.

Although I don't mind sharing a little personal return information, it is not to be taken as any type of touting or 'look how easy it is'. I had to dig out my stack of buy orders and simply plugged in the date to the return chart using the appropriate dates. I simply stick with Intel for the moment. My returns are nothing compared to the 15, 20, 25 and 29 year time frame since the IPO in 1971.

The original Intel shares my wife and I purchased ten years ago have returned roughly 5,200%. We added shares three years later that have returned roughly 2,200%. We added more shares in the summer of 1995 which have returned roughly 700%. We bought our last additional shares in the autumn of 1998 which have returned roughly 225%. You would have to plug all of that information into your formula to determine annual return average for each as they are all the buy and hold strategy thus far. The compounded returns of the original shares certainly are starting to kick in with this investment for us. I'll be honest and say we got a higher return in a shorter amount of time with other stocks, but I'm just sticking with Intel in this illustration.

Whether or not one perceives the return on Intel as having been good, great or just so-so - I would like to wish those returns on all investors if I could. Regardless if they use a short term, mid term or long term strategy.

I have been a lurker, so I wanted to add thanks to all of you on this board that provide so much of your time to get your very insightful GG information out to others for sharing, and building upon.

Join in more often. The future is staring us right in the face.

BB
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If there is any management team that has studied the chasm, tornado and standards game better than Brocade - I'd like to meet them.

As somebody who holds BRCD and who has great respect for both BB and the GG, I like that statement. I like it a whole lot.
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<<the blind squirrel understands that they will not be able to repeat that on an annual or binannual basis - no matter how appealing it may seem.>>

I don't know about blind squirrels, but there are any number of individuals who've done quite well over time. They just don't publish newsletters. I doubt that Prestone intended to claim that he can maintain this pace for the next twenty years, but then neither can a GGer. Anyone who's been riding the wave since 1982 is in danger of confusing genius with a bull market.

<<When the capitulation and lowering of interest rates signaled a unique opportunity I hadn't seen in the previous 15 years, I actually used margin as a strategy.>>

<<My wife is a recent investor as well because Mr. Ashok Kumar downgraded the stock.>>

<<I did add to my positions when many of them lost well over 50% of their value not too long ago.>>

All of which is part of timing.

Timing does not mean some crazed individual staring beady-eyed into a CRT eight hours a day and obsessing over an eighth of a point here or a sixteenth of a point there. It need mean no more than being aware of behavioral economics, particularly as it relates to the financial markets, or at the very least basic sociology, as well as being aware of fundamental market cycles.

My original point way back when was that these stocks can become over-priced, and that if one is conscious of basic market realities, he can buy them at lower prices if only he is willing to be patient. The general consensus seems to be that market timing is impossible, but it seems as though quite a few people engage in it anyway.

I'm not interested in having the last word. I'll be more than happy to give that spot to somebody else. But surely we've exhausted this topic. Many of the stocks under discussion are still over-priced. Many of them now present extremely attractive risk:reward ratios, far better than what they presented a few months ago. Anyone who waited until now to buy or who has been averaging down during this period has been attempting to time the "market". He just hasn't been very deliberate or strategic about it.
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Mike,

If you want to construct a spreadsheet to test your mathematical assumption and show me that I'm wrong, I'll be open-minded. And if you want me to e-mail my spreadsheet described above to you as a point of departure, I'm happy to do so.

Since you only offered this to me then I better take you up on it!

Please do email me the attachment. Hopefully I will have some time to put something together this weekend. I have copied this to your email also.

Thanks.

Prestone
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Bruce Brown says:

Yes, you have only be trading for a very short and volatile time frame which even I was able to time quite well using no exotic strategy in the autumn of 1998. Maybe a blind squirrel would have had little trouble snagging over 100% returns in a short time frame like that (after taxes). However, the blind squirrel understands that they will not be able to repeat that on an annual or binannual basis - no matter how appealing it may seem.

Sure, I will assume most investors would be happy since the low of the autumn of 1998. From the day of the low on the Nasdaq on 10/8/98, the Nasdaq actually is up 179% through today. But I wonder how many blind squirrels returned over 13 (X) that of the Nasdaq in the same time frame. A better question would be, how many individual stocks have actually performed at least 13 (X) the Nasdaq in that same time frame? The only one I can name off is XLA. Just for giggles, 13 * the 179% of the Nasdaq is 2327%. I am up a tad more than that, but in all fairness, that does not include taxes. QCOM was there, but it slid back down. In fact, QCOM is now up 1127% from the close that day. I think there is something to be said when a trading portfolio beats that of nearly every individual stock.

There is no way in Hell that I expect that ever to happen again. If I see an annual return of 1/10th of that, then I would be exstatic. It is an anomaly, but it happened, none the less. The result of a market gone berzerk. I am not foolish enough to think otherwise. I dont mistake blind brilliance for a bull market.

I do believe that there are many different strategies that many different people can use to get the best results for themselves. It is a matter of matching the person to the strategy. A ton of work goes into trading, and that is something that somehow should be put into the equation as well. If one can get the same results from two different strategies, then they should take the one that needs the least amount of time. I work full time, am a college student part-time, and am married with child #1 on the way. Time is definitely not at a premium. My research for trades actually takes place in the afternoon and at night when my better half is asleep. I am never even at home to buy or sell when the market is open. It is all done with orders - limit, stop, and market orders from the night before.

So, the reason I have come to the board is that I know my time for researching will dwindle even more with the addition to the family. Obviously some things are more important, so finding a strategy that required so much less time is attractive. This is one reason why I took MikeBuckley up on his offer, because I want to determine just what type of return that a trader must attain to keep pace with the tax-deffered LTB&H. (If I was wrong in the first place that is :)))

I said originally:I know that Bruce adds to his Gorillas often, ...

Bruce Replied:I wouldn't say 'often'. My wife and I have a dual income scenario and have had since the late 80's. We save on a regular basis and continue to put that money to work quarterly.

Sorry, I did not mean to misrepresent you. I was just going off of the comments you made on the Trenchrat board about QCOM. I thought you said that you had added to it 4 or 5 times this year. Even if you did say that, it was an isolated incident. I dont pretend to know your dollar-cost-avg. methods or time-frames. <gg>


My wife and I are like you and yours in that we have not used the money from the returns to add to our lifestyle. We have actually never taken a penny from the account. It is this that makes the compounding, true compounding. Well, at least true compounding after taxes and expenses right?

Thank you for the response, BTW. This actually reminds me of arguing over who had the better year in 1941, Joe Dimaggio or Ted Williams. Williams was the last guy to hit above .400 and led the league in home runs, but Dimaggio had the most RBI's and was a Yankee, of course he won the MVP. They both had great seasons (long, great careers for that matter), maybe it should be left to the fans to argue. The ones that want to root for Dimaggio can, and the ones that want to root for Williams can. You definitely wont get them to agree, even if near definitive proof is shown!! <ggg>

Prestone


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Prestone,

I'm glad you posted to the folder because your note didn't arrive in my e-mail. Or at least I didn't notice it when I sifted through the garbage that comes daily.

The spreadsheet is in Excel 2000 format. If you're not using that version, tell me which one you are using so I can send it to you in the proper format.

--Mike Buckley
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Mike,

I have Excel 97.

Prestone

(Also copied to your email again)
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Sorry, I did not mean to misrepresent you. I was just going off of the comments you made on the Trenchrat board about QCOM. I thought you said that you had added to it 4 or 5 times this year. Even if you did say that, it was an isolated incident. I dont pretend to know your dollar-cost-avg. methods or time-frames. <gg>

You didn't really misrepresent me. My wife's IRA had about 5 Fidelity Funds for the past 10 years in addition to some shares of Pfizer and cash which we never got around to investing. When we moved overseas in 1995, we lost our tax status to contribute to our IRA's - so I can't say the focus on our two IRA's has been anything 'great'. It was difficult enough to do the paperwork back and forth to change them from their original 1980's structure of being fund only accounts to brokerage accounts.

I had encouraged her to sell all of those funds sometime earlier this year because I certainly believe more in individual stocks. Hence, the opportunity arose for us to put our heads together and finally get that money invested in the market because it wasn't doing any good sitting in cash. By the way, I forced my wife to sign up for the Fool this month and to read a few basic investment books so she could start learning some things. Qualcomm was one of the stocks she added to her IRA. Yes, it was some form of 'timing'. However, it really had more to do with switching from a mutual fund based IRA to an individual stock based IRA than it did with timing. Procrastinating for the past 5 years with her IRA is the real culprit. However, her IRA has a good 30 or more years to make up for it.

The only one I can name off is XLA. Just for giggles, 13 * the 179% of the Nasdaq is 2327%. I am up a tad more than that, but in all fairness, that does not include taxes. QCOM was there, but it slid back down. In fact, QCOM is now up 1127% from the close that day. I think there is something to be said when a trading portfolio beats that of nearly every individual stock.

Wow! Congratulations Prestone. This blind squirrel is very impressed with that kind of gain. You better give Jimmy Cramer a call and apply for a job to help him improve his record. <ggg> What's your after tax gain for that time period?

I do believe that there are many different strategies that many different people can use to get the best results for themselves. It is a matter of matching the person to the strategy. A ton of work goes into trading, and that is something that somehow should be put into the equation as well. If one can get the same results from two different strategies, then they should take the one that needs the least amount of time. I work full time, am a college student part-time, and am married with child #1 on the way. Time is definitely not at a premium. My research for trades actually takes place in the afternoon and at night when my better half is asleep. I am never even at home to buy or sell when the market is open. It is all done with orders - limit, stop, and market orders from the night before.

You are correct in stating that different strategies meet different needs and results which satisfy each individual. A ton of work goes into successful long term investing as well. At least it does for me when choosing an initial investment. I've got stacks and stacks of information sitting around the house that I feel I have to sift through.

Best of luck to you as you prepare for the greatest investment you and your wife will ever make. Yes, your time will dwindle with the addition to your family. However, it's fun and relaxing to play Barbie, or to play baseball in the backyard, or to trade Pokemon cards, or to watch all those old musicals and Disney flicks, or to......wait a minute - first things first - diapers and two years of very little sleep.

All the best.

BB


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