While CMGI will have the weight of quite a few sellers on its shoulders in a effort to move higher, its worth notice that 50% of market cap is in cash and 8% of the float is short with volume drying up.
Maybe a January bounce play?
Ideas???
mad2
siliconinvestor.com
What we can learn from CMGI's losses
Defcon
November 21, 2000
by Aram Fuchs
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So you've seen your investment in CMGI (CMGI) evaporate in the Internet sector meltdown. You look for people to blame. Perhaps it was David Wetherell, the company chairman -- he didn't realize how quickly markets can change. Perhaps it was the irrational capital markets that either love or hate Internet stocks and seem to never value them rationally.
Well, I'll tell you what I think.
In the early '90s, Peter Lynch, a famous mutual fund manager who worked for Fidelity Management, popularized an investing theory that Warren Buffett originated. The theory purported that investors should buy a company that is easy for them to understand, and hold onto it for as long as possible. And if the company is doing well, make sure not to sell it just because it got expensive according to traditional measures.
This theory would prevent investors from selling companies that will do well in the long term just because they were temporarily expensive. As Lynch said in a PBS interview in 1997, "You want to let the winners run. When the fun ones get better, add to them You basically see a few stocks in your lifetime; that's all you need."
Looked good at first
Then CMGI came along. Investors saw that the company was making investments in a variety of sectors within the consumer Internet. These included such well-known names as Lycos -- now Terra Lycos (TRLY) -- AltaVista and GeoCities, now owned by Yahoo (YHOO). These initial investments were successes.
People started getting excited. They thought Wetherell and his henchmen were Internet visionaries. Business magazines across the land wrote flattering cover stories about them. On Oct. 12, 1999, Business Week quoted a Robertson Stephens money manager as saying, "CMGI has so many investments, and so many contacts, and so many smart managers. If anything happens in the Internet world, they are going to know about it."
Of course, everyone just wrote off the continuing losses as "investments" in the infrastructure necessary to serve the customer base that inevitably would come onto the Internet.
As the stock got bid up more and more, the press and the sell-side's reviews were even more glowing. In fact, the price of the stock, in a backward kind of way, became a reason to buy it. In December 1999, SmartMoney quoted then famous and now infamous Merrill Lynch analyst Henry Blodget urging investors not to worry that the stock looked expensive by any conceivable measure.
Blodget told SmartMoney that Internet market leaders like CMGI "perpetually look overvalued" and in most cases stay that way. But those investors who buy and hold their shares will be "richly rewarded."
But as it turns out, the appreciation of CMGI was not due to the fact that the fundamentals of its investments were getting better. In fact, as we now know, several of CMGI's companies were doing horribly. In the past month, two affiliated companies have announced layoffs and four have announced that they will shut down.
The lesson?
In CMGI we find a quintessential case study of the bastardization of Lynch and Buffett's strategy. Investors knew most of CMGI's affiliated companies because they were mostly consumer Internet companies. And if, according to this theory, the consumer Internet was going to grow like Jack's magic beanstalk, then obviously CMGI, which is a direct play on the consumer Internet, was obviously a good investment at any price.
Yet the company was not going up for fundamentally sound purposes. If this happens again, I'd give the company a Defcon 1. You get no points for being loyal in this game.
THE DEFCON KEY
Defcon 1 = Hit the sell button
Defcon 2 = It's dangerous
Defcon 3 = Stock picker's market
Defcon 4 = Getting hungry
Defcon 5 = Load up the SUV
Aram Fuchs is the CEO of Fertilemind.net, an independent equity research house. Reach him at aram@fertilemind.net. |
