Forum Archive Index - May 2000

[neil.selman@gfmb.co.nz]

John, what is your primary purpose for investing - Do you want to be Secure,
Comfortable or RICH?
Viewing your current portfolio, I'd suggest that you're somewhere between Secure
and Comfortable.

If you want to be comfortable to rich, then you need to do the following:
   Focus your portfolio to no more than 5 quality stocks which you are able to
   buy at a discount,  A discount meaning that their current market price is
   substantially lower than their intrinsic value.
   The intrinsic value is basically the discounted cash flows.
   However, ensure that the company meets the following quality measures.
   Management with intelligence, energy and integrity, a history of real growth
   measured by return on equity (not earnings per share which provides a false
   reading as it can be accomplished by simply retaining funds, also ensure that
   you adjust the earnings for abnormals, etc) and has significant brand
   goodwill (and therefore can achieve good margins for their product/service).
   Part of the point of focusing is that then you can make sure that you know
   all that there is to know about the company.  Use that knowledge and only
   change your position if the companies underlying quality measures change or
   if you can sell at a substantial premium to the companies intrinsic value.
   Otherwise hold indefinitely.
   Clean out your current position and only buy the top 5 stocks, based on the
   above.
   Buy offshore if the offshore company is better, don't do it for solely for
   the purpose of diversification.

If you want to be rich quicker and don't mind an element of risk, ie forgoing
some security, then buy into a company like Pacific Lithium Limited.  But again
you need to know all that there is to know about such companies.  The good thing
about these start up companies is that you can effectively act as an insider and
get in and learn and know it all.  PLL is still a good investment.



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