You will notice that there were excellent contributions of thought from Mike Buckley as well as StockHawk in that Fool post you linked to of mine. Credit needs to be addressed on this thread where it is due.
The Cisco numbers were from StockHawk:
Message 14740263
Mike's thoughts on intangible assets came from here:
Message 14769942
And of course the summary of some Mike Murphy thoughts were included in that post. His were only one man's opinion and we could all argue about his track record. However, we have to realize that it's quite possible the value chain does or does not exactly know the current business growth and what that might be 'adjusted' to in terms of growth over the next few quarters due to economic conditions.
I guess the entire point is what can't back up in time to what has transpired in the past 12 months. All we can do is continue to focus on the companies that we study and realize the valuations and why they must be adjusted at various times like this based on growth, market sentiment and the economic environment. Some things that we do know - or at least we should know include how much cash some of the companies we follow like Cisco, Intel, Microsoft, Siebel, Oracle, i2, Qualcomm, JDS Uniphase, Network Appliance, Sun Microsystems, etc... have on hand to weather the environment. Although it sounds silly, one has to separate the share price from the company during a corrective phase and realize that these are strong, solid companies that all have excellent prospects of weathering the storm and coming out from under the clouds once the sun begins shining again. We know the markets they all address with their respective technologies are not going to fall off the face of the earth. We also know that growth comes in waves and is never steady or consistent. The economic situation alters the picture and thus the share prices.
As many have hinted since last fall and much of this year, in terms of historic valuations even presented in the 'manual', gorillas/kings (and others) - along with most of the market - were at levels (and some still are) which have never been seen before for extended periods of time. Whether you call it CAP adjustment based on the interest rate/bond rate/business profits tax rate/growth rate environment or just plain valuation correction - it's real and has been on our doorstep ringing the bell and knocking loudly. Whether we label it a 'bear market' or a 'valuation correction' based on the underlying economic issues - we've been seeing it take place.
In the latest quarter, we saw year over year revenue growth rates like Sun at 60%, Siebel at 130%, Cisco at 66%, Intel at 19%, i2 at 118%, EMC at 35%, Microsoft at 7.7%, Oracle at 14%, JDS Uniphase at 171%, SDLI at 208%, Yahoo! at 90% (Network Effects report member) and - if you will allow me to toss in some hypergrowth companies as well surrounding the IP/Broadband area where Cisco plays - Juniper at 581%, Redback at 291%, Foundry at 191%, Extreme at 153%, Broadcom at 131%, PMC-Siera at 177%, AMCC at 156% and of course we'll hear from Network Appliance and Brocade Communications in the data storage/transport segment by the end of November. All of these companies, at least in their conference calls and reports, continued to say demand was robust and growth looks good. Now, we all know that the market considers that all 'in the past'. They want to forecast out what the growth is for the three quarters after the October/November/December/January time frame looks like. The worst track record that analysts have, according to "A Random Walk Down Wall Street" is that of predicting time frames of 12 months out. Their track record improves a little bit for the 5 year period, but in general the 'average' prediction is not the most convincing pillar of advice. Couple that with Mike Murphy's tour around these technology conferences hearing from the companies themselves saying things look good and the comments in the CC calls from the company managements saying things look good and the picture gets really fuzzy and contributes to all of the 'uncertainty'.
What happens in the face of 'uncertainty' about growth, economic conditions and the election situation which nobody could have predicted?
This brings out all of the chartists pointing to trendlines, 200 DMA deviations on the upside as well as downside, TA experts, candlestick makers and every crystal ball reader who combine forces to turn the 'forces' into getting what they want. The folklore religion turns the crowd into an 'accepting mass' that is happy to oblige. For those that might be new to investing who haven't lived through economic cycles or uncertainty before, it might be one heck of a reality check. Even if you have lived through it before in the past couple of decades and know what it's like or can be like, it's a real gut check every time it occurs.
I guess my only thoughts on the process is to not lose sight of the goal of why it is we invest in the first place. Did we buy Qualcomm in 1999 as a one year play? Did we invest in Siebel or i2 in 1998 or 1999 or 2000 as a short term play? Network Appliance? EMC? Cisco? Gemstar? Or whatever equity it was that fills in the blank? That's not going to comfort anyone's pain of capital losses or the fact that shares may continue to go down in the short run. However, it is designed to offer comfort that the investing process is not one of short time frames. Trading is one designed for short term time frames. In an uncertain time such as we are sitting, it's easy to lose sight and switch strategies in hopes of doing something right or easing our comfort level. Just be aware of that. The 'average' return between 1950 - 1997 year for a 12 month period is (-26.47) to +52.62%. As you move through the 5, 10, 15, 20 and 25 year periods, those average returns all turn to the positive side past the 5 year point. We will have to have the persistence and fortitude to continue an investment program going forward over the years in hopes of matching or besting those returns over the longer term. Be it in IP/Broadband, data storage/transport, wireless technology, software/network applications, semiconductors, IPG/EPG or whatever comes along for our study in high technology.
Eventually, we will have a new President. Eventually, the economic cycle will most likely take interest rates in the other direction. Our continued look at valuations, growth rates and DD is suggested in terms of how they fit in with the economic cycle and perhaps adjusting growth rates based on the cycle.
BB |
