hueyone,
This expansion in multiples could not be expected to continue indefinitely...
I would add that the achieved level of multiples couldn't be expected to be maintained indefinitely, much less increased.
I suspect initiating a long term buy and hold strategy on Gorillas at the peak of valuations last year will have very serious, long term, negative consequences extending many years for those that did so.
I'm the first one to be charged with painting with broad brush strokes, but I really do think valuations need to be addressed on a case-by-case basis to be truly meaningful. As for case-by-case examples, I very much believe that the investor who paid roughly $75 for Siebel stock early last year will do very, very well over the long haul, so much so that I believe there is a very reasonable shot at at least doubling the S&P500. Buying Qualcomm at $150 about a year ago I also believe has a terrific chance at doubling the S&P 500 over the following five or ten years.
I also believe your thoughts need to be put in context. Yes, you're clearly right that buying Qualcomm at $150 has negative effects compared to buying it at $55, $85 or $100. Buying it at $150 also has a negative effect compared to buying a different stock at a more reasonable valuation. In other words, buying it at $150 has a negative effect compared to buying it or anything at a better valuation.
However, do I believe that an investor is precluded from doubling the S&P 500 over the next ten years by buying Qualcomm at $150 a year ago? No, I don't think that.
I applaud you, Down South and Mike Buckley for being farsighted and bright enough to get in to many Gorilla stocks or candidates before the bubble hit in full force.
I know those guys well enough to know that they aren't as farsighted as you give us credit for. :) I'm sure not. The fact is that if the bubble had burst at the end of 1999 when the Naz had risen 85% in one year, we wouldn't have been able to know when it would happen. And in mid-1999 we didn't know a bubble of anywhere that magnitude was going to form in the last six months, so don't give us credit for getting in before the bubble.
Just my thoughts.
--Mike Buckley |
