As for me, I wish I had more EMC, because network storage will only grow. But like Lindy said the other day, there are too many goodies and not enough money.
Yes, there are a lot of goodies available in terms of investments. I just wanted to bring up the subject of Kings and other goodies after reading this board for a few months. Yes, the manual states to hold them lightly. However, I think that succumbing to what one perceives the manual is saying or not saying needs to be addressed. Rules are meant to be broken in investing when it comes to certain areas. We all have different valuations in our portfolios which means that we can't all be following the same set of rules. Some have more money than others on this board which might qualify for seeking out other goodies besides gorillas. I'm sure I'm not alone when stating I have made a lot of money in royalty technology stocks over the years as well as several Godzillas. In fact, I've made more money from royalty plays and Godzillas than I have gorillas since 1992/93. That says a lot since I've had shares in MSFT, INTC, CSCO and ORCL for many years.
The value chain under some of these gorillas has provided some tremendous investing opportunities and wealth creation for investors. Perhaps a level of risk that is slightly higher to much higher, but certainly the risk is not fly by night risk when it comes to excellent royalty plays like EMC, DELL, GTW, JDSU, LU, IBM, HP and quite a few others. I will also admit that in 1994/95 after seeing the Internet for the first time - I jumped to the conclusion that it was the future force behind the entire value chain (even though I knew nothing about the gorilla game at the time) and would benefit for years to come. The investing industry had written off the PC industry in the early 90's saying that every office that needed PCs already had them. When I saw the Internet for the first time, I went hog wild and spread a sum of money throughout the value chain underneath the gorillas (even though I didn't know it was called a value chain at the time). I also added to Intel, Microsoft and Cisco at the time. The gorilla stocks chugged along, but the royalty plays chugged along quite impressively as well and some even gave returns like a rocket - provided one had a few of the greats. Dell would be the one great that broke many rules and amazed the industry and investor alike.
Going forward, we now know that the Internet is the Gorilla the likes that we have never seen before. A great company like EMC is poised to benefit for the obvious growth in the storage market reasons. We know that wireless is selling more units than PC units now, but I think the PC era is far from over at this conjecture in time. Plenty of royalty plays in that sector that have positioned themselves to create shareholder value going forward. The Internet is here, but what threats do we see of displacing the gorillas and royalty plays that make the Internet possible? Yes, of course there are risks for all. This we know and cannot avoid.
I'm simply suggesting that the premise of only investing in confirmed gorillas and possible future gorillas may not be the single source of best investment return going forward. I am as excited as everyone else about Qualcomm, Gemstar, Rambus, Brocade, RealNetworks, Microsoft, Intel, Cisco, Siebel, i2 and Oracle. However, I'm also equally excited by some great royalty game stocks going forward as well as some Gorilla-King (Godzillas). As one begins to reach a certain level of wealth accumulation, branching out into other non gorillas can be a positive thing and boost the portfolio's return.
Although it is a Godzilla, if one runs some basic rules of investing on a stock like eBay, you come up with this for the latest year ended (taken from The Motley Fool seminar daily e-mail):
eBay (10-Q, 8/9/99)
Sales growth: 155.0%
Gross margins: 77.8%
Cash-to-debt: 5.86x
Inventory growth: n/a
Receivables growth: 92.7%
No, it's not a gorilla and they do face challenges of other auction sites on the Internet. However, in terms of a business model that meets and beats the five basic rules of investment criteria listed below - it is hard to find fault with this one.
1. Sales growth in excess of 15% over the previous year.
2. Gross margins holding steady or rising and above 50%.
3. Cash savings that amount to 5 times more than long-term debt.
4. Inventory that is growing no faster than sales over the past year.
5. Receivables that are not growing faster than sales over the past year.
AOL, Dell and Wal-Mart would never meet the 5 basic standards outlined above. Yet, they break enough rules to qualify for great companies and great stocks to invest in for the long haul. (I know Wal-Mart has little to do with our game, but it was in he info at the Fool.)
The Icarus Scoring method which we learn in the revised manual ranks eBay quite well. Using the Icarus scoring method at the time of the revised manual's writing, the four biggies of the Godzilla game end up in this order. AOL, eBay, Amazon and Yahoo!. What would an investment of $10,000 in each near the beginning have provided to date? Hmmmmmmmm.....
When talking about goodies to invest in - as well as asset allocation, I think for some investors who play the gorilla game it is important to remember there are some excellent royalty plays and Gorilla-King (Godzilla) plays available that just might trounce the returns of stocks like INTC, MSFT, CSCO and ORCL going forward if one is willing to use a portion of their investment capital in a slightly higher risk/reward scenario. I for one, would welcome some more chatter either here or over on the seemingly not too frequently visited e-commerce board with stocks that fit into that genre.
I see money to be made over the long term in stocks like Ariba, ICGE, DoubleClick, eBay, Yahoo!, EMC, Dell, Lucent, Covad, AOL, Nokia and others - just as money has been made in the past for shareholders of these stocks.
Please, don't take my view as trying to put a damper on any Qualcomm or Gemstar discussion in any way. I love those discussions. I just think we should challenge the rules of the manual a little deeper and put into the context of astute investing that allows us to focus in on where we could make some $$$$$ in royalty plays as well as dive into the excellent new chapter in the RFM about the Gorilla-Kings (Godzillas) to uncover some great investing opportunities. That chapter was worth the $18.20 - believe me. I would like to see us run some Icarus scoring tests on stocks like DoubleClick, Ariba and others like the authors did on Yahoo!, AOL, eBay and Amazon. After all, the inside flap of the new, revised manual lists three stocks. Cisco, Microsoft and Yahoo! I posted the book cover inside flap information before, but just a reminder. $10,000 invested in Yahoo! in 1996 would today be worth $317,000. Of course that was the price they used at the time they did the printing. Remember, that Yahoo! scored the lowest in the Icarus scoring test of AOL, eBay, Amazon and itself. That's a hell of a return for the loser.
There is money to be made outside of the gorillas proper and the new book certainly does expand its thinking of the game, but is clear to point out that we shouldn't confuse the Godzilla game with the gorilla game. The book also supported some good claims as to why a royalty play like Dell has been awarded a price to sales ratio much higher than any other box maker in the value chain. There was no talk of holding it lightly that I recall. Yes, we know the story of Compaq and plenty of fingers are still healing from that falling knife....
So, let's continue to gorilla game together. However, I would certainly welcome discussion about other goodies under the King and Gorilla-King categories that might offer some handsome returns with calculated risk. There's nothing like a mother-in-law's call to sweet talk her son-in-law who advised her to buy DoubleClick, Yahoo!, Qualcomm, AOL, Intel and Cisco at various points in her IRA. Last night she said "Why do you buy me these stocks that go up $14 in a day?". I said "Because I love you and need to make up for your broker's mistake of Gillette and Safeway which have both dropped 50 percent or more." <ggg>
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