Deep trends count for more than "valuation"
<< I simply question your definition of "what is cheap" On a historic basis INTC is waaaay over-valued. OTOH if you subscribe to the new economy definition of valuation I suggest you continue to buy. >>
When I started investing in the mid-70s, I dutifully pored through "The Wall Street Transcipt," a summary of analyst opinions. And I read Hoeffler's "Microelectronics News" (Don H. gave us the term "Silicon Valley"). And I read "Electronics," "Electronic News," "EDN," and a couple of other weeklies. Mentions of Intel were rare in the general press...I remember we'd all gawk when Intel was mentioned in "The Wall Street Journal." And by around 1979-80, there would even be occasional mentions by Lou Rukeyser or Frank Capiello or Carter Randall on "Wall Street Week."
Was Intel undervalued, properly valued, or overvalued in 1975? In 1980? In 1985? Etc.? By the standards of Graham, Dodd, and Cottle, THE BIBLE, it was _always_ overvalued based on current or even next-year earnings. No value investor would have bought Intel at nearly any time in the 70s and 80s.
The Graham and Dodd value investor would have picked Youngstown Sheet and Tube over something as overvalued as Intel. Or Sun, or Oracle, or Qualcomm.
I have always invested by using everything I can imagine about future likely trends to "get in on the ground floor." Instead of talking about Intel, I'll instead use Oracle and Qualcomm in more recent years.
Being interested in crypto, I knew a lot about Anthony Viterbi, inventor of Viterbi encoding. (Used in the early interplanetary space missions to ensure good transmissions.). And I knew of his work in digital communicaitons on earth, incluing M/A-Com, the set top box company (since merged into some other company...). When I heard he had co-founded a company called Qualcomm, my ears perked up. When a friend of mine began telling me about their products, in the early 90s, my ears perked up even more. When I grasped the likely significance of code division over time division, CDMA over TDMA, for cellphones, I had my broker get me their financials (this was pre-Web). I ended up making a lot of money. However, seeing the escalator ride up in 1997-8, I got out before it doubled and doubled again. (It's since fallen, so I may have gotten out at about the current price...I haven't bothered to do the calculations recently.)
I bought about $30K of Qualcomm initially, sold it after it doubled, bought back more when it dropped (around 1995, IIRC), and ended up selling out for about 6-8 times that original investment. (Numbers may not be _exact_. As I said, I haven't done the calcs recently...I don't obsess about exact figures. This was all in my IRA, so precise accounting and taxes have not been an issue.)
This was a matter of "buying the story," as the current jargon goes. This was examining the fundamentals...not the "fundamentals" of current earnings, P/E, cash, etc., but the more basic fundamentals: is this company likely to dominate in some important technology or market?
A second story is how I tried to short Netscape in 1995. I saw the hype, looked at the unlikelihood that people would _pay_ for their browser (when free browsers were out, when piracy of Netscape's browser was common), and I tried to short them after their IPO. Alas, there's basically a six-month period before shorting is feasible, for various reasons.
So I looked around for a company to buy long that would not have the problems Netscape would likely face. Oracle, then a struggling seller of relational data bases, seemed to be gaining traction against Sybase and others. And their software was "glue" for the developing Web. So I bought in.
My $40,000 investment in Oracle turned into many times that at the peak, but still a fair multiple of what I paid.
Again, buying the "story," the fundamental trends, not looking at beancounter evaluations of P/E, cash, etc.
A third example is Apple. When I saw the original Macintosh in January of 1984, instead of buying one for $2500, I bought that amount of Apple stock. Not much, but a start.
Despite people writing them off several times, after the impressive presentation of current and future products at their 1997 annual meeting, I bought 2000 shares at the then-low $15.50. This past year, I sold most of my shares at $105. (Apple split 2:1, so these numbers are, respectively, now: $7.75 and $52-53.)
Several months, after the crash, I bought back in at $21. Apple is now at $17.30.
It's the "story" I look for, the chance to get in on a company that will be an important player in an area of expansion.
Now, not all of my investments have done as well as Intel, Oracle, Qualcomm, and Apple. Some companies have gone out of business completely. Some stocks are trading at a fraction. (I'm lucky in that I didn't put a lot of money into companies like Symbolics, Red Hat, and Akamai! What I lost was a fraction of what I made on the bigger successes.)
One last point. Would I buy Intel today? No. Not that it's not a fine company, but when companies are this large, it's hard to see them doubling or tripling in the next several years. When Intel was trading above $70, with a market cap. of $500 billion, did anyone expect they would become a trillion dollar company anytime soon? A lot of us were talking about how crazy the valuations had become, that's for sure. Not many of us acted on our hunches, apparently.
(I am hoping that Intel will return to the $50 level and stabilize there, though. Purely a matter of comfort level, not expectation or prediction on my part.)
And, yes, I'm still looking for the technologies and companies which will be the Oracles of 2005, the Intels of 2010.
--Tim May |
