Posted to the Gilder forum - January 15, 2000
Until Denny returns we will have to rehash some of the insights he has shared with us. The following is the third installment and represents his most recent "pearls."
I also think that they are way off base (with due apologies to GG). QCOM, JDSU, ARMHY, MUSE, RFMD and SSTI are all better medium term prospects than GBLX. My thinking is that after the Telecosm infrastructure is built out, then we should move our money from chips to service providers—to the cash cows. But that is not now, maybe in 5 years time.
This is what I call a very prudent balancing of my team! I really don't know why we don't win the pennant more often with this scientific team management. Do you?
I love the JDSU story and it is growing revenues at a 104% clip year over year and it is growing earnings at a 121% clip year over year (pro forma to exclude the accounting fictions like good will).
Can it get better than this?
Review your portfolio by all means but look for revenue growth, earnings and, specially, earnings growth. The stocks that have these things will bounce like tennis balls in a correction. The speculative stocks with no earnings you might want to trade in for stocks with earnings. This is the type of rotation that I do all the time, not just when others worry about corrections.
The ones that did not invest claim that the market is too risky or that they don't have the time and patience. The market is not too risky but you do need to have the time and the patience. And then you need to study and, most difficult, you must ignore the incredible amount of hype and misinformation flying around. Money attracts scum just like garbage attracts flies and you need to ignore the scum and their vile tales. Caveat Investor!
Not all the ones who did invest made good. The ones who did not find a methodical system and instead listened to each latest and greatest idea never did well. For a while I listened to Louis Navellier and did very well. Then I tried to outsmart Navellier using his own recommendations and I did less well. There are many thing that work and you have to find one that suits your style. For the while I have settled on what I call the Telecosmic Value Plays. I listen to GG for technological advice and read a lot of books about the technology and then I pick those technology stocks that also meet sound investment criteria like revenue growth and earnings growth. It is a winning combination with relatively little risk.
It has taken me nine years of active study and hard work to get to the point I am at now. It is not easy but the rewards are sweet. Never did I dream that too much wealth would be a problem I would have to deal with.
When you buy and hold stock of excellent companies you are in effect reinvesting yearly with no trading costs using tax free dollars. Buy and hold only works well for growing companies, it won't work for cyclicals.
I already have 15 of these and being a buy and holder, I have to believe in them, don't I? The new ones include storage, Gigabyte Ethernet switches and optical switches. They will place in this order in 2000!
Best bet of the next 5 years 2 GSTRF
The market will catch on (fire) 3 MUSE
Only software play in infrastructure 4 QCOM
Cellular giant 5 ARMHY
"ARM inside" everything mobile and intelligent
Only optical switch I could find 7 FDRY
Gigabyte Ethernet switches 8 EXTR
Gigabyte Ethernet switches 9 JNPR
Gigabyte Ethernet switches 10 NTAP
Topologically correct storage place 11 SSTI
Flash memories are made of this 12 AMCC
Chips are US 13 PMCS
Chips are US 14 CNXT
Modems, modems everywhere 15 RFMD
RF in everything mobile 16 NXLK
Last and next to last mile 17 NT
NT is reinventing NT 18 ATML
Chips are US 19 POWI
Power management 20 PWAV
RF in everything fixed 21 XLNX
Chips are US 22 EMC
Old gorillas never die, they trash chips
Old gorillas never die, they trash chips
Still has to spend a lot of cash for build out
Not convinced that the market is ready for
JDSU Best bet of the next 5 years
GSTRF The market will catch on (fire)
MUSE Only software play in infrastructure
QCOM Cellular giant
ARMHY "ARM inside" everything mobile and intelligent
SCMR Only optical switch I could find
FDRY Gigabyte Ethernet switches
EXTR Gigabyte Ethernet switches
JNPR Gigabyte Ethernet switches
NTAP Topologically correct storage place
SSTI Flash memories are made of this
AMCC Chips are US
PMCS Chips are US
CNXT Modems, modems everywhere
RFMD RF in everything mobile
NXLK Last and next to last mile
NT NT is reinventing NT
ATML Chips are US
POWI Power management
PWAV RF in everything fixed
XLNX Chips are US
EMC Old gorillas never die, they trash chips
CSCO Old gorillas never die, they trash chips
GBLX Still has to spend a lot of cash for build out
NOVL Not convinced that the market is ready for this
The Gorilla Game takes a totally different view of asset allocation. It suggests that, instead of diversifying, you should concentrate on the winners because they will be the best performers. You can see that this is the opposite of what MPT preaches. I am now using the method suggested by The Gorilla Game. I continually check for losers and when I find one, I sell it (I was recently accused of being trigger happy :) and move the cash to a better performer. Some stocks perform so well that they grow to be a very large part of the portfolio (QCOM, JDSU and ARMHY now make up 50%). Since I don't want to overdo things, the cash gets reinvested in good but not the best performers. (QCOM gave me a BIG problem in December :) but JDSU seems to be coming to the rescue :).
This being a bull market, I am 100 to 110% invested (margin). If some money becomes available and I have several new candidates, I usually split the money in near equal amounts amongst them unless one or more of them is some kind of a "dip my toe" test in which case it gets less than its equal share. Then, over time, each stock sort of decides where it wants to be.
But non of these rules are fixed, I play it by ear within this framework
When I did my "baggerness" piece I discovered, very much to my surprise, that EMC out bagged Microsoft's Bill (robber hacker) Gates, Dell's Michael (just in time) Dell and Intel's Andy (paranoid) Grove. EMC did not just out bag Intel, EMC beat Intel by a 7 to 1 baggerness margin!!!!!
How could you possibly have a portfolio without EMC when GG says that storage will eat up 75¢ of each dollar spent on computer hardware? After reading "The Holy Grail..." it seems to me that Network Appliance has the leading edge in NAS storage even if EMC's market share is growing faster. I will be doing the same as you, if NTAP falters, bye-bye NTAP!
One of the wonderful aspects of this forum is that it makes you do research in areas where you previously had decided who the winners and losers will be. This new research, which unclogs the brain of old and wrong ideas, more than pays for the time spent on the forum.
Next surprise: Cisco Crisco out bagged EMC by 29%!!!! Guess who will be added to my portfolio when I finally figure out the Ethernet and optical switching business?
Productive? I think shorting is just plain stupid because the risk/reward ratio is much less than going long.
Investing is a question of resource allocation. Short can never equal long in potential appreciation of capital. Simple!
© Software Times, 2000, 2001. All rights reserved
Last updated June 22, 2003