Former Investment Director at Mattioli Woods plc. Experienced Investor with over 25 years experience in UK Equity looking for a new challenge
I’m sure many investors (as I have) have spent a lot of time thinking about the latest technology rally and its AI leader Nvidia. Technology is likely to outperform over the longer term but entry point for investors is crucial. The below comment and attached article are worth a read (and the article includes one of my favorite investment quotes by Scott McNealy of SunMicrosystems.) In the short term, the bulls are winning but in the medium to longer term, can anyone be sure?
On double digit multiple of sales, growth needs to be not just good, it needs to be parabolic. Back in 2000 a lightning strike on a chip factory in New Mexico disrupted production for both Nokia and Ericsson. The subsequent profit warning from Ericsson triggered a chain of events that ultimately led to its share price dropping 95%. Back then, they were the 'picks and shovels' of the Internet and Telecom gold rush, along with stocks like Cisco that traded on 40x Sales. Fast forward a generation and its AI, where the clear parallel in Nvidia. Great company, great story, but everything has to go right when you are on 40x sales... https://lnkd.in/e_C6G5_4
Mark Tinker
9mo
Jeremy Siegel wrote Stocks for the long term and pointed out that even though the earnings forecasts for most of the nifty fifty turned out to be reasonably accurate, it didn’t prevent a lot of booms and busts along the way. A world that fires a manager for going down 15% in two out of three years never waits around for the 50% rally (sadly). Alternatively, they buy the rally and then wonder why they don’t get 40-50% every year…..Look at the long term chart of Cisco; great if you exclude 2000, but back then it was on 40x sales and dropped 90%. It’s tripled since then, but how many held on? We all want patient capital, but it’s rarely there. Not a stock recommendation, but when a stock is on 40x sales, has 98% market share and is currently selling 50% to its biggest near term competitors, it’s reasonable to question how an investor can expect to get a return - beyond bigger fool. Moreover when we are told not to buy China on 1x sales on Taiwan risk, it seems odd that one of the most expensive stocks has massive risk exposure to China/Taiwan.
John Tompkins
9mo
Mmmmmm. While I get the argument… chart Q, vs KWeb and tell me what you think about how long people can stay irrational
Co-Founder & Lead Portfolio Manager for BlueBox Asset Management
9moI would actually strongly disagree with one part of your comment Chris White. I'm a technology PM, so I'm clearly biased, but I'm also quite a successful one 😇 so may be worth a hearing! I actually think the entry point is not worth worrying about when investing in technology companies. Much more important is to ensure one buys tech companies one is confident will grow their GAAP EPS in the high-teens or better for many, many years. Those companies will be on a 15%+ long-term stock price trajectory, and the nice thing about a 15% trajectory is that even the worst entry point works out fine fairly soon. This chart is the equal-weight S&P Technology Index as far back as it goes, on a log scale. The red lines are 15% annual growth all the way along. NOT BEING INVESTED is far more dangerous over any period of more than 18 months than investing at the wrong moment! And in case you're worried that we might be near the top of the trend, remember: this is a log scale and a 15% trend - we would have to gain another 25% or so to reach the top of the trend by the end of 2024.