From: Peter C. McCluskey (pcm@rahul.net)
Date: Sat May 31 1997 - 10:16:30 MDT
maxmore@primenet.com (Max More) writes:
>At 08:55 AM 5/26/97 -0700, Peter wrote:
>>
>> maxmore@primenet.com (Max More) writes:
>>>Of course, but if you don't yet have enough money to diversify, the next
>>>best thing is to pick one very safe stock. Given the markets still opening
>>>to Coca Cola, I think it's a very safe bet. I intend to hold the stock for
>>>many years.
>>
>> This basic idea makes sense, but it is important to base your belief
>>that it's a safe bet on something other than what other investors are
>>currently thinking, or you will generally end up buying fads. Personal
>It sounds like you are making assumptions. I chose Coca Cola because I am
Of course. The reasons you initially gave for buying Coke were
indistinguishable from those of a typical investor, so the simplest
hypothesis that explained your reasons was that you were following the crowd.
>reasonably familiar with the management and the major changes they made
>several years ago, and because I have discussed the company with those who
>know much about it and have been convinced that it has long-term growth
>still ahead of it.
This reasoning is better.
>The same (only more so) would have been true if I had bought Microsoft,
>which I certainly would have done if its stock hadn't been at an all-time
>high (though still a good value).
It's a mistake to avoid a stock because it's at an all-time high.
This seems to be one of the circumstances the average investor is most
likely to underestimate a company. I suspect that this results from something
like a belief in the labor theory of value - if there was a consensus
that a company's fair value was in a certain range, then there seems to
be a clear presumption that it ought to be continue in that range.
maxmore@primenet.com (Max More) writes:
>[Aside to Peter McCluskey: Coke also ranked no.1 in the category Value as a
>Long-Term Investment. This information had nothing to do with my choice,
>which I made before seeing that result, but adds to my confidence in my
>analysis of the company's prospects.]
This should reduce your confidence, as it indicates that there is little
room for mainstream investors to improve their opinion of Coke.
Remember that unless your information is better than that of the
people who are selling Coke, you have no reason to think you will
outperform them.
-- ------------------------------------------------------------------------ Peter McCluskey | | "Don't blame me. I voted pcm@rahul.net | http://www.rahul.net/pcm | for Kodos." - Homer Simpson pcm@quote.com | http://www.quote.com |
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