There’s A Bear Crouched In The Bushes

Find me a ready talker on bear market destruction. They must be around in the bushes. We need Eva Peron back, wailing “Don’t Cry For Me Argentina”. 

Historic bear markets are easy to track, decade after decade. Just track the red line down with your index finger. 

The deconstruction of internet properties is captured in this table which shows contraction in asset value up to 80% or more for some properties. This, of course, is unacceptable shrinkage for any tech player in the game. Intel then, was down 63%. But, don’t overlook shrinkage in Dell, Sun Microsystems and WorldCom. 

For tech houses, even Cisco and Applied Materials, there’s no excuse for a hold at all cost. Buying a tech house under 10 bucks a share with a great franchise is the name of the game. Consider the old Nextel franchise. They were unstoppable and finally bought out by Sprint Corporation. Exodus Communications at its peak, sold at a market capitalization of $35 billion then traded down to $1.33 a share. It had sold at a price equivalent to Alcoa near $40 a share. 

When all else fails, money managers, even analysts, resort to the metric of revenues to market capitalization. It’s a legit way of playing the darkest before dawn scenario when heavyweights like Cisco have no earnings but tens of billions in revenues. Yahoo at its peak, sold at over 100 times revenues. 

A decade or so after the mid-teens tech bubble, anyone who pays more than 2 times the growth rate for anything is looking for heartburn. Normally, I won’t pay more than 2 times revenues, for anything that walks and talks. 

More than a decade after the mid-teens tech outing, the market is trying to make sense out of Intel’s market valuation and earnings power. I pulled this Berkshire Hathaway Table which is over a decade old.  Names are  recognizable, reasonably valued and pay dividends year after year. 

Investors should compare the quality of such holdings on Buffett’s list for operating sustainability and valuation.