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On the Mark with Monsanto
: I used to be an equity research associate following pharmaceuticals, and I thought your article on
was excellent. I think the stock has been supported through the last couple years by merger rumors and then solid expectations for MTC's drug business (after the AHP merger fell thru). As a result, the multiples have been high and it's been harder for the stock to get a kick from
. However, I also think that once EPS estimates are actually increased based on hard historical data of Celebrex's success (which hasn't yet happened), the stock will start to move better. And any positive news on any other relatively major drug in MTC's pipeline (they still have a few) will also be a stock-mover.
It is also true that Europeans are stonewalling MTC. I believe it's a political thing. Why let an American company control your agriculture? However, it can't last forever. And the potential for global warming, which could start to reduce crop yields in as little as 10-20 years, also suggests good long-term potential for the plant biotech industry and MTC in particular.
-- Beth Lerner
Vanguard Health Care
Your column on the closing of our
Vanguard Health Care fund was, in many ways, exceptionally well done. I do, however, want to comment on certain other points.
The quote from Robert Levitt (and it isn't quite clear who or what he is) is merely one man's opinion, and it is not supported by facts. Moreover, the "hot money" investors were undeterred by a 1% redemption fee that lasted for one year.
I also feel compelled to comment on your point about "what happens when an investor experiences a liquidity crisis and needs to sell shares to raise cash?" We note in the offering materials for this fund that it is intended only for those who are able to hold it for the long term, and even then the fund should comprise only a small portion of an investor's overall portfolio.
Finally, we do not intend to have investors "behave in the way (we see) fit" as was inferred at the end of your column. We are merely upholding our obligation to our current shareholders -- to protect them from the unfortunate and all-too-real financial consequences of short-term.
Brian Mattes, Principal, The Vanguard Group
China Deserves No Kudos seems to skirt the main issue: What if Chinese leadership should undertake the drastic reforms that you seem to favor?
understand what needs to be done in China, but they also want to hold on to power to ensure that their vision of China gets carried out. If they move too quickly, they might accomplish economic and democratic reforms to the approval of Western interests. The downside may be that China will dissolve like Russia into a third-rate power, complete with chaos, and a nonfunctioning democracy that is run by gangsters.
China's problems were created over centuries. It is unfair to push Jiang and Zhu to completely turn it around overnight. The prudent approach is to move delicately. A chaotic China is not good business for Asia or the world.
Prof. Statman may be a good stat man, but he'd be a lousy money manager. This
critique of sentiment is typical of the market-timing studies that come out of academia and get credulously reported by the financial press.
For example, an efficient market acolyte will "prove" that a trend-following technical system doesn't work by applying it in a vacuum. This is a brain-dead approach that no trader interested in making money and not losing it would ever adopt. Why? Because trend-following systems don't work when markets aren't trending. If one uses other indicators to detect a trending market and only then takes the trend-following signal, many such systems work quite well.
Similarly, saying "I will always buy when the II sentiment indicator is x percent bearish" is a recipe for losing money. The indicator, like any other, should only be one arrow in the trader's quiver. Such variables as the interest rate regime have a huge impact on the valid interpretation of sentiment. There are contrarian sentiment systems that beat the
handily in historical back-testing. Such systems, however, use a changing interpretation of the sentiment number. If a monetary filter and a price filter are bearish, a 50% bullish sentiment might be too high. If both filters are bullish, a bullish sentiment level of 80% might be acceptable.
Good contrarians know that the majority of investors are neither always right nor always wrong, but are "right during the trend and wrong at both ends." Simplistic evaluations of useful indicators do a disservice to readers by causing them to dismiss something that could contribute to their insight into market behavior.
-- Mark Zudeck
Tug of War
I really enjoy reading
articles. However, I'm getting a little tired of his
recent incantations about new investors not understanding risk vs. reward, when it comes to stock vs. bond investing. The reason many new investors are saying "so what" to the recent bond market movement is that many, myself included, are long term investors, not traders. We don't care what bonds are doing today. We are not planning on retiring tomorrow. We feel confident that, in the long run, keeping our money in the stock market is the best decision.
: Sorry, I must agree with those who worry about
Y2K. Not because anything really bad will happen on that date, but because by then the media will have hammered it to death and scared everybody silly.
Back in October '97 I remember hearing all that media hype about the 10 year anniversary of the crash. I laughed. Turns out I was the stupid one with 100% in the market when it hit. Same thing will happen with Y2K. Guaranteed. The only question in my mind is how big the media-induced panic will be. I'm guessing there will be a run on the banks that will last about 3 days in late December and then it's back to normal.
on PC spending. I hope he gets to the bottom of the slowdown. Lots of investors in old tech think that the advent of the
is the reason for the slowdown. I know that I were waiting to buy a new home desktop until Feb. 26 when the Pentium III would be available at the same price as the
. I bet this is very widespread since
was very public about the release date for Pentium III months in advance.
The surge in Christmas PC sales at retail was for first time buyers who wouldn't know a Pentium II from a Pentium III or from an AMD for that matter.
I'm betting that March will be a blowout month for higher end PC sales. Their are lots of folks like me who have three-year-old PCs and want to get the latest with DVD!
Here's another possibility for the slowdown in PC sales to add to your list. My company recently purchased a whole slew of new PCs from Gateway in a broad attempt to become Y2K compliant. Eighty-five percent of the firm's PCs were replaced this January. My firm simply will not need to buy many new PCs for while.
Some of my friends in the software industry also indicate that many of their clients are concentrating on implementing Y2K strategies and have purchased most of the software and hardware for the task already. Now they need to put it to work.
cited his dedication to value investing in this high-priced market. I have known Don Yacktman for four years, helping him spread his story to clients in the Midwest. It's been tough sledding. Don has always stressed the importance of paying attention to the cash generated from a business, and the quality of management's decisions to reinvest that cash.
I think Don's focus on cash flow, and the price he is willing to pay for that, has created a portfolio void of attention from investors. Because the market is at an all-time high, based on any relative measure, the portfolio has come away from the ideal cash generators to smaller, lesser-known cash generators. Good companies in their own right, but lacking in the liquidity and broad awareness necessary to attract other institutional investors.
Don has had some of his better businesses bought away from him.
International Dairy Queen
were consumed at a premium to the Yacktman Fund's price by another noted value investor,
. So before you go and vote for
, banking on a company whose focus is thin margins, ask yourself where the world's most successful investor would put his money. Don's discipline to value has never waned. If he didn't stick to it, you couldn't call it adiscipline.