Everyone, pretty nice column in today's techweb, pretty applicable to CPQ, in my opinion...
Russell Wayne,
President and chief
investment officer of
Sound Asset
Management
Russell Wayne's Bio
Archive of Wayne's
Columns
Contrarian Corner
Buy Quality Ugly
Fri., Mar. 13, 1998
Warren Buffett, probably this country's
best-known investor, is believed to have
suggested that investment success comes from
buying what has value, not what is popular. Yet
some investors believe the key is to get aboard
the bandwagon and ignore fundamentals.
Over the last decade, and even more so since
the early 1990s, one of the simplest of all ways
to get good investment returns has been to do
nothing more than pick the most fashionable
names. Invariably, these have included General
Electric, Coca Cola, Gillette, Microsoft, and
Intel. More recently, such companies as Merck,
Bristol Meyers Squibb, and Pfizer have also
become acceptable. There is, however, another
side to this coin.
Those who can remember the massive effort
underway in the early 1990s to reform the
nation's health care system will recall that this
effort caused drug stocks to drop into the tank,
never again to see the light of day. Owning drug
stocks at that time was a sure way to have
people question your sanity. After all, talk was
rampant about price rollbacks for
pharmaceuticals, which led to the inevitable
conclusion that the halcyon days for the drug
companies were long gone. Few believed
Merck selling in the 30s or Bristol in the 50s
(presplit) had much of an investment future.
Guess what? Fast forward 48 months and both
have more than quadrupled. Not surprisingly,
thanks to the sharp rise in their prices, many
investors now think these are great stocks to
buy. Now they are popular; in 1994, they had
value.<> Turn the clock back to the third
quarter of 1990, when preparations for the Gulf
War were just beginning. Stock prices were hit
extremely hard; the averages plunged 15
percent to 20 percent in a short period. Far
worse was the fate of the banks, which found
themselves with a shocking proportion of bad
real estate loans. These "discoveries" cropped
up at an accelerating rate, to the point where
virtually all the major banks were convicted by
the investing public, regardless of how severely
they were affected by these problems. The
scary part was the extent of the problems yet to
be identified.
The time of the greatest fear turned out to be the
time of the greatest opportunity. Citibank
shares, for example, which stand north of 130
these days, were barely 10 percent of that in the
midst of the debacle. More current is the
dramatic turn of events for AT&T, which only
last year languished in the low 30s as the
bleakest of all pictures was being painted by
Wall Street's most knowledgeable analysts.
What was hideous at that time has nearly
doubled, and, of course, the financial community
has decided that Ma Bell is again becoming a
beauty.
The point is that opportunity rarely comes in an
attractive package. If the fundamentals are
sound, taking a position during an awkward
period may be a sensible thing to do. So long as
the underpinnings are solid, patience will be
rewarded, often handsomely.
John
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