"God Bless the Bear Market"
Top Post, Tue Jul 24 16:54:00 EDT 2001
By astaroth_lux
- Taken from JDS Uniphase (JDSU) Previous Respond Next
By: astaroth_lux 07-24-01 at 12:59 pm
Reply To: seabug Post # 128990
God Bless the Bear Market
Truly, I say, God bless it, let us not recoil in horror before it as we would from a bunion looming atop the face of an elderly loved one, or from a pustulent boil on the haunch of a favorite horse, or as good Mrs. Cratchit did from the very mention of prayers for Scrooge.
Nay, nay, let us bless the Bear Market, let us drape garlands of praise and affection upon it, let us revel in the Truth that is has revealed: that great wealth can only truly be tasted for its piquant bloom in times of great poverty, and that only the courageous, the savvy, the bold, and the stoic will survive in the capital markets.
My paean to the Great Bear out of the way (and what the Great Bear giveth, the Great Bear taketh away, such that the additional 50K I pumped into JDSU in June has dwindled to half that size as of today):
1) I remain astonished and mystified by the folks out there (not on the boards, but throughout the world, investors of all stripes) who were lapping up tech stocks in '99 in the high hundreds (I seem to recall INKT and RMBS well above 200 or thereabouts), who were screaming that these things could "ONLY GO HIGHER"...and now they won't touch the same companies at, quite literally, a fraction of the price.
Why is that? Ah, well, you will do well to dutifully remind me that the conventional wisdom on Wall Street has changed, that the liquidity crisis, abetted by the oil 'shortage', has drastically slowed capital spending, and that the phenomenal tech boom of 1999 was an anomaly. It's all downhill from here, according to these Barron's reading folks.
But oddly enough, this was the Barron's line from about 1983 onward, and the perma-bears have been consistently wrong about all of the major technology shifts that have made a few companies that were started in suburban garages into supreme technological powerhouses in only a matter of decades. Between SUNW, MSFT, or CSCO stock tucked away for 10 years and WMT, GE, or PG, I'll take the former, even with their current bleeding, over the latter any day.
So is the conventional wisdom correct? Well, do remember that the conventional wisdom (and all of its acolytes on Wall Street last year) were saying that tech stocks in the 200's could 'only go higher'. Remember Henry Blow-jet's prediction, in January 2000, that Yay-hoo would be soaring past 500 bucks a pop by December 2000?
So much for the conventional wisdom.
2) Is JDSU done for? Well, let's go over the checklist once again: a) it is a leading company in a rapidly growing (well, soon to be rapidly growing again...) industry, that of fiberoptics, which is already superceding switches/routers as the premier means of lightning fast information transfer. (b) Is it financially viable, and does it have sufficient sales revenue to offset the risks inherent in a developing technology manufacturer? Well, in the three quarters leading up to 3/31/01, the company made 2.63 BILLION dollars, and in that quarter alone made nearly 1 BILLION---nearly three times the result of the previous year. (c) Does it have sustainable advantage? This is a crucial one, and a chief reason that a bubble stock like Yay-hoo will never crack 40 again. JDSU, by contrast, has a nice, deep moat that it has gouged out around its business---how easy would it be for a start-up to begin churning out passive and active photo-receptors?
But what of the company's godawful expenses----a net loss of 3.21B in the nine months ending 3/31/01? A good way to get a handle on this 'expense' is to a) realize that JDSU wrapped up a score of mergers last year, including two high profile ones---E-Tek and SDLI. b) As a result, the company wracked up considerable amortization charges---check out the 'amortization of intangibles' line in the 2nd quarter Income Statement---it's nearly 2.2 billion dollars! Taken together, the total amortization of intangibles for that same nine months in which JDSU 'sustained' a '3.21 billion dollar loss' is---4.34 billion dollars.
But what is 'amortization of intangibles'? It's certainly not cash flow, but rather an accounting fiction, an expensing over time of the 'goodwill' paid out in a merger---that is, the cash value less the book value of the acquired company's assets. But the bottom line is this: the cash expense has already been incurred, and thus amortization/depreciation has no relation to corporate cash flow or survivability.
3) The final point: in the last few months I have been across Europe, gone climbing in Transylvania's Borgo Pass, seen the spires of Santa Sophia in Istanbul, and set up a condo in Hong Kong (where I'll be consulting in the next little bit). In that same time, the rhetors of Raging Bull and countless stock boards have prattled and brayed about how the End is Nigh, that tech stocks are dead, and that you should, like them, spill out your life following the minute to minute blips of little numbers---as if this is the way to build long lasting wealth.
The truth is very different. Wealth goes to those who take calculated risks, and are comfortable taking losses if they are convinced in the soundness of their strategy. The greatest generals in history---Alexander, Caesar, M. Aurelius, Hannibal, Gustavus Adolphus Vasa, Napoleon, Rommel---have routed their foes because they took calculated risks and had the courage of their convictions, and were willing to move the troops forward even when the air was thick with pain and blood.
4) This does not mean that you should go piling money into tech stocks like JDSU or CSCO or MSFT or AOL; or that you should invest in tech stocks at all. What it does suggest is that you should evaluate those stocks with the greatest growth potential and the strongest balance sheets, and remember that when the mood of the market changes, tech and growth will call the tune. The best investment strategy is not to time the market, but to invest every month in strong companies with dynamic prospects---and then to turn off CNBC and walk away from the boards.
Best of luck in getting wealthy,
LUX
now, don't quote me on this one, cockroach. |
