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August 31, 1999

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Subject:

Re: Where is everybody?

Author: RyanH1

AMA'ers,

Say it ain't so, Mycroft.

If no one is left to champion the cause of value investing, I will definitely take that as a contrarian signal that we're at a market top. I personally believe that value investing is still the style of choice for serious investors. It may take some time to reap the rewards in over-heated markets such as this one, but I'm confident that those returns will eventually be realized. Maybe I'm wrong, but I do not logically understand how price can not be the determining factor as to whether a purchase is made.

For example, if a person paid too much for a house, he might not be able to sell it for more than he paid in the future. Today's stock market investor seems willing to pay any price for a house (stock) as long as it's a great house. I realize this is not a perfect analogy, but you all understand what I am trying to say.

I believe investors should try to be buy-and-holders if the situation presents itself, but as Warren Buffett has stated, there are only a handful of truly great companies that would qualify to be bought and held. I'm sure he would add that it would only be prudent to buy shares in these companies if they could be obtained at a price that afforded a high probability of a good return.

I also understand that this is a wonderful economy we find ourselves in. Most of the population is gainfully employed and earning a good wage. People have money burning a hole in their pocket, and a need to do something with it. I urge you all to think about your potential purchases and ask if they would make sense if there was no stock market in which to invest and therefore no chance of quick gains from the auction process.

Suppose you had to go to each individual company and make an offer for shares in that enterprise. How would you decide what would be a fair price to pay for shares in a particular company? After going through a qualitative process similar to that described in Phil Fisher's "Common Stocks and Uncommon Profits," you would probably try to make a rough estimate of how much you thought the company could earn in the future, and then try to figure out what price you could pay for those future earnings now and achieve the type of return that meets your requirements, right? I'd like to believe that eveyone goes through a similar process, but I know that to be incorrect. You don't have to visit too many of these message boards to learn that most investors just want to be riding the best horse out there even if it is not going to take them where they want to go in the end.

Good luck to you all in your investment choices.

Sincerely,
Ryan