Value Library

The following is an excerpt from the ABC Perspective - January 2000 - Pg. 12

Snakes and Ladders

I just bought a game for my six-year-old son which I incidentally played as a child. Snakes and Ladders is a very simple game encompassing one of man's greatest failings and that is coping with life's "ups and downs".

For those not familiar with Snakes and Ladders, it is a straight-forward children's board game where the object is to advance from square number one to square one hundred. Players toss dice and move their markers according to the numbers rolled on their dice. Along the way to reach the final square 100 and to win the game players are confronted by a number of obstacles (as in life) or snakes and ladders.

If a player lands on a square with the bottom rung of a ladder, the player moves up the ladder to the square bearing the top rung of that ladder. The player has fortuitously picked up a free ride to advance up the board. If, however, a player lands on a square bearing the tail-end of a snake, the player moves right down the snake to the snake's head. The player is penalized and will have to retrace his previous upward movement. This sudden turn of events can be extremely frustrating. A player can be well ahead early in the game with only ten or fifteen squares from winning when he suddenly lands on a snake and tumbles downward to almost square one. Snakes and Ladders like everyday life, is not exactly a "bowl of cherries". One must contend with both good and bad surprises.

Snakes and Ladders is also similar to the stock market. After all, as investors we are constantly confronted by a series of ups and downs. Our innumerable choices will ultimately determine our future course. How we cope with our temporary investment setbacks is key. Persevering and trudging on to attain our goal of performance excellence is all-important. Let me explain.

Presently the stock market is hitting new all-time highs with high technology, Internet and telecommunication stocks running wild. Many investors have taken a lucky ladder up to new heights. The value players concentrating on traditional book and net asset values, price earnings and cash flow multiples have been severely penalized as they have repeatedly slid down the innumerable precarious snakes or roadblocks along the way. It has been extremely frustrating. In fact, many impatient value investors have given up. They have thrown in the towel, changed their style and have chased the recent high tech winners.

Perseverance, however, is key to those remaining value investors since the stock market like the Snakes and Ladders game can be extremely fickle. A sudden roll to a snake or ladder can change the game's whole complexion. Investors' conviction, too, is constantly challenged. While testing of our mettle can be very excruciating to value investors, the market can turn very quickly. Today's big laggers can turn into tomorrow's big winners.

Irwin A. Michael, CFA