Neil,
I first thought I should let Frank handle your questions. But because I add so much verbage to this thread, I feel empathy also for those who began investing a year ago. So my second thought is that it would be irresponsible of me to ignore a couple of the great issues you raised.
Is any price okay to buy a CSCO?
No. As I wrote awhile back, valuation needs to be a tool Gorilla Gamers use if for no other reason than to pick the best valued (less risky) of two companies that are otherwise comparable in strength.
Bruce and I have often written in the past year and longer that we believe the authors were dead wrong when they wrote that the market always undervalues a gorilla. I think it was also Bruce who brought to the thread that Moore is now conceding on his list-serv that, indeed, the market can drive prices so high using a price-to-vision ratio that gorillas become overvalued using any other kind of metric on the planet.
Certainly SEBL's fundamentals haven't deteriorated.
It's always easy for us to recognize that about stocks that have declined. But why is it so darned difficult to notice that often times when a stock is going through the roof that the fundamentals haven't improved comensurately? I've preached especially about Siebel and Gemstar that we really do need to wonder why the stock price gets so high more than wondering why it gets low.
That's where valuation comes into play. I spoke about the importance of valuation in San Diego when I asked everyone in the room to raise their hand if they thought stocks, even Gorillas, were getting priced to high. Lindy made the video tape available to those who didn't participate. I'm sure it's still available. I transcribed my presentation into the thread. And when Siebel hit new highs a month and two months ago I raised the issue again in the thread.
My point is that some of us stress these issues because we really do feel very bad for the people who start investing in high-tech stocks when all the signs indicate that valuations are in uncharted territory. (My gosh, is it possible that Siebel really was worth almost 35 years of the last 12 months' revenue? 35 years!)
We hope the newbies aren't investing every last dollar in these high flyers all at once. We hope that some common sense is used, that money is moved slowly over time into new sectors so a newbie doesn't feel the need to learn whole new industries all at once. That's because if there's anything we've stressed here, it's that we should never invest in a company we don't understand. And you can't understand a company unless you understand the whole industry. (I plead guilty. I don't understand Cisco. I own Cisco. Don't make my mistake!)
For all the newbie investors who took the plunge and maybe did it all at once, ignore that you bought stocks. You bought companies. You own a portion of those companies. If they meet the criteria of GGaming, they're great businesses that will prosper over a very, very long period of time. They are enjoying a competitive advantage the likes of which doesn't exist beyond the realm of high-tech businesses. Eventually the stock price will reflect the cash flows those great, great businesses generate. Eventually you will be rewarded for your patience, regardless of how difficult that might be to appreciate in the here and now.
--Mike Buckley |
