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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: puborectalis who wrote (80736)	7/23/2001 12:54:20 AM
From: bela_ghoulashi	Respond to of 99985

After-bubble earnings: traders-talk.com Different This Time? (CGT 7-21-01) by John Bollinger Capital Growth Topics # 381: Different This Time? Thinking about the tech stocks after being asked yet again whether it is time to buy them yet… One needs a sense of perspective and what better sense of perspective can you get than from an old chart book? Fortunately a retiring money manager recently contributed a great deal of material to my library, included were a couple of issues of Stephens Graphic Stocks from the late 1970s. These chart books are particularly informative as they depict the aftermath of not one, but two speculative bubbles. The first was a tech bubble that burst in 1968. In those days the revolutionary technology was computer timesharing--not a compound word at the time. Typical companies were Mohawk Data Sciences, MDS, on the NYSE and California Computer Products, CPI, traded on the AMEX, or "the curb" as it was then called. Mohawk topped out in 1968 at 110 and made a momentum low near 20 in 1970. After a bit of hesitation the decline continued in earnest. MDS traded for a buck at the end of 1973, and then marched sideways for 4 years before bouncing in 1978. Before you ask, yes, MDS was making money--39 cents in 1968, $1.15 in 1969 and $1.02 in 1970. Thereafter deficits loomed. Yes, the decline began while earnings were going up and, yes, the stock was down 80% before the deficits showed up. CPI fell from 52 in 1968 to a momentum low at 10 in 1970. It finally traded at 2 in 1975 before starting to bounce a bit in 1978. And CPI's earnings were even better: 34 cents in 1966, 67 cents in 1967, 55 cents in 1968, 41 cents in 1969, 35 cents in 1970 and a record 98 cents in 1971. However, the next year CPI posted a $2.99 deficit wiping out the prior five years' earnings completely. The story in 1973 was the Nifty Fifty, fifty one-decision (buy) growth stocks that you were supposed to hold forever, reaping untold rewards for doing so. These companies were widely revered as possessing powerful business franchises with unlimited capacity for growth--beanstalks in a word. Xerox, XRX on the NSYE, was one of these. It peaked in 1972 at better than 170, retested its highs in 1973 and then collapsed. Earnings grew through 1974 when they made $4.18, fell in 1975 to $3.07 before recovering to $4.51 in 1976 and $5.06 in 1977, when the stock traded at 40 (down 75%) and yielded 5%. Xerox finally got underway again in 1982 after trading under 30 and sporting a dividend yield of better than 13%--the dividend wasn't safe don't you know, as we finally learned this year when XRX eliminated it. Actually there were two other speculative bubbles evident in the Stephens books, the Florida land craze and a healthcare binge. There were also some chart books from the 1960s in our library bequest that neatly depict the bowling stock bubble, but those bubbles are, as they say, different stories for different times. Of course it will be different this time. The high-tech leaders are going to rip right back into action. Right??? John Bollinger, CFA, CMT 20 July 2001