Forum Archive Index - May 2000

[Phil Eriksen <phil@acepay.co.nz>]

Kausa Smith wrote:
> 
> I thought to share this invaluable advice from a dear
> old friend with readers of this forum.
> 
> -----------
> Kausa, ... you have learned very fast about the
> sharemarket investments. You are also so lucky to have
> a broker who is on your side and looking after your
> interests. ... Remember, if you want to make good
> money of investing in equities, the last thing you
> want is to follow the crowd. There are good money to
> be made indeed even in a bear market as I have
> experienced on NYSE for the last 20 yrs. ... Don't
> read into too much what the instituions are doing as
> in most cases they are just as blind as anyone else. I
> have been known in my circle as  a "gold dropper,
> garbage picker". I buy stocks that everyone else
> thinks are heading into a brick wall, and sell the
> ones others couldn't get enough of them. Believe you
> me I have made a very comfortable living this way from
> merely $1000 that my father lent me ...
> 

I agree with this, with reservations.  Following the crowd is never a
good move (thats one of the reasons I read Sharechat, to see what the
"crowd" are saying).  However, simply being on the other side of the
crowd  isn't a good method either.

To me, the best strategy is as follows.  I freely admit to borrowing
much of it from Warren Buffett (I doubt that gets me dinner invites in
todays world).  I'd love to have a strategy I could claim as being 100%
my own, but the genius of the man to me is that most of what he says is
so basic and logical a lot of people *know* its right - but having the
discipline to sit on a pile of cash, or avoid booming tech shares etc is
very very hard.

The great man himself has said "a good business isn't always a good
investment...but its a good place to find one."  So very briefly :

The first job is finding a good business.  Alas, easier said than done,
and very time consuming.  I spend a fair amount of time trying to work
out what to invest in, and as we speak, there are companies I have
followed closely for years which I haven't got a cent in.  If you know
of a company, understand it's merits and value it at, say $6 a share,
its incredibly frustrating to not buy at $10 then see it go to $20. 
However, I believe strongly in the "margin of safety" approach so
*attempt* (note usage of "attempt"!) to avoid paying $10 for what i
think is worth $6 just because it might hit $20.

The second job is to turn that good business into a good investment, and
that is done as your friend says, by watching the crowd , and buy
companies you long ago selected, hopefully at a price well below their
true worth when the crowd gets ugly.  At all times I have a nice little
list of companies, but frustratingly, often 20-50% cash because of lack
of reasonable prices.  However, when fear hits, when prospects are
downgraded, when an earnings "glitch" occurs, when some miners are
killer, some greenies protest, a competitor fails casting doubt etc etc,
thats when its dinner time because you can buy shares in businesses you
have already identified as strong, at bargain prices because of the
"crowd sentiment".

Would be interested to hear what everybodys basic "strategy/ideas" are
when it comes to sharemarket investment.  

Cheers,
Phil

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