In early 1999, I noticed CSCO's price leaving the long established exponential appreciation I had been lulled into believing was normal for this company. For reasons I couldn't understand or explain, this company's stock experienced an acceleration that was both sudden and steep. I recognized this as a temporary aberration, but since I couldn't find a cause, I also had no idea when it would end. But end it must.
I had not expected this stock to perform beyond what I had experienced for many prior years. In spite of the price approaching triple what I believed to be reasonable, I viewed my holdings at a much lower value than their then current price. I knew that the price discrepancy would need be resolved, and that a few possibilities for this seemed likely: A drop in share price; a flat period while fundamentals caught up; or a profound improvement in business enough to justify current prices. As the divide between the market's perception and my assessment of reality widened, lower prices looked more probable.
Currently, for CSCO to be trading at its long-term sustainable trend, we'd be trading $35 shares. Since I've seen the price rise to levels a multiple of this value, I shouldn't be surprised to see them at a fraction too. At the current price of $28, they are priced reasonably, but not a screaming sell the farm bargain. I believe in prices reverting to the mean, and I'm content with CSCO's mean.
I have no desire to augment my current holdings. I've enjoyed the market for a few decades, but now would like to move on to other things. Thirty percent of my current CSCO position was added in the 'pit of 94', but then the PE was about 19, and the price was $1.66 split adjusted.
Like so many who have forsaken the cubicle for the ticker, I have had to determine what level of living expenses are appropriate. Income is for spending, capital is for investing. But many of my stocks don't pay dividends, but instead return earnings through stock re-purchase. This leaves me with stock selling to maintain personal cash flows. The question becomes how much? I chose to look at earnings per share as what I'd get if I owned the entire company. For CSCO this is $0.18 this quarter. Multiply earnings by my shares gives me an idea of the size of pool dividends would be paid from, if they existed. Take a typical fraction that real companies convert to dividends and I write myself paycheques based on this number.
God help those who believed CSCO would appreciate forever based on 1999 and had adjusted their spending accordingly.
Opportunity seldom knocks on the same door forever.
Cheers, PW. |
