Tony Sagami (Harvest Advisors) submits: In 1999, my web-based business was rocking and rolling. New customers were opening accounts faster than we could get to them. Back orders were piling up fast.
I didn't have too much time to enjoy it, though. Because along with the booming business came a problem I had never envisioned: spoiled, rotten brat employees that had no concept of hard work -- kids who expected to be pampered like rock stars or paid like professional athletes.
Everybody in the dot-com and high tech business was hiring, and the competition for qualified employees was brutal. Finding them was hard; keeping them, even harder. It wasn't just about money and stock options. High tech and dot-com companies also showered employees with idiotic butt-kissing benefits.
Refrigerators were filled with free soda, juice, and Snapple beverages. My company routinely spent $3,000 to $5,000 per month just keeping the employee refrigerator stocked. The year-end holiday season was transformed into a competition for who could throw the most extravagant party.
AskJeeves, for example, hired Elvis Costello. Respond.com brought in the performers from Cirque du Soleil. Hewlett Packard flew in a collection of works by Picasso never before shown in the United States.
I couldn't afford all that. Nor could I afford the big signing bonuses, trips to Hawaii, cash to pay off student loans, free cars, and house down payments that were routinely offered to pimple-faced kids fresh out of college.
In any given week in the San Francisco Bay area, you could find dozens of dot-com parties that cost $30,000 to $50,000 to put on. Salesforce.com, one of my main competitors, would throw parties that cost more than $200,000.
It was insane, and it all turned to dust. So surely, the high tech world has learned its lesson, right?
Wrong.
GOOGLER FOODIES
Right now, I'm seeing the same type of stupid excesses starting to creep back into the high tech world. And I'm not just talking about the price of Google (ticker: GOOG) stock busting through $400 a share.
I'm talking about the return of idiotic corporate spending.
Consider this account by Steve Petuservsky, a famous chef who was interviewed for a cooking job by Google and then wrote about his experience in the South Florida Sun-Sentinel:
"Google feeds a free breakfast, lunch and dinner daily to employees at its beautiful Mountain View headquarters, and the company is looking for a chef ...
"A handful of chefs from around the country are interviewed by phone and then those selected are brought to corporate headquarters to cook a full menu for a panel of 35 Googlers,' as employees call themselves ...
"I have had a rich and wonderful career cooking in foreign countries for royalty and celebrities, but never have I done anything like this.
"I arrived in San Francisco early in the day and drove 40 minutes to Google headquarters, where a valet parked my car on the beautiful grounds complete with volleyball courts rivaling our finest Fort Lauderdale, Fla., beach courts.
"I was shown to the kitchen to begin my food preparation for the following day's preliminary battle. It's a large, well-equipped kitchen with dozens of cooks. The food prepared here is a benefit for Google employees, whose average age is 25. Unlike a traditional restaurant where stringent food and labor costs dictate the menu, this is a chef's Disneyland where food is born of inspiration and pure love of cooking.
"The food is served to thousands of well-educated and savvy foodies. Many of the ingredients are organic and locally grown. There is every imaginable seasonal produce item, the finest natural meats and poultry, fresh fish, lobster, rock shrimp and organic tofu -- both Japanese and Chinese."
My view: Executive chefs and company cafeterias aren't unusual and lots of large companies have them. But free gourmet breakfast, lunch, and dinner?
As in the crazy dot-com days, money is being lavished on Googlers like rock stars.
BUT WHAT GETS MY BLOOD BOILING ISN'T JUST THE SHEER WASTE.
IT'S THE SHAMELESS DISDAIN AND DISREGARD FOR SHAREHOLDERS.
Sadly, the same brand of greed that took down Enron, WorldCom, and hundreds of other dot-com rockets is coming back to haunt corporate America.
This should make you worry. The pinstripe suit club is starting to party as if it were the 1990s all over again. But it isn't the 1990s. The world has changed. And it's a different ball game.
First, because too many investors got burned too badly, they're not going to come rushing back to technology without solid profits and truly viable business models.
Second, because there are now bigger and longer-lasting booms elsewhere: In China, India, other emerging nations ... and in Japan.
Meanwhile, the ground-floor bookies that plant the seeds of IPOs -- venture capitalists -- are again assigning extremely aggressive valuations to the companies they are funding.
According to VentureOne, a research company in the field, the median valuation for start-ups backed by venture capitalists soared to $16.8 million in Q3, compared to $13 million one year earlier. That's the highest since Q2 of 2001.
This new round of euphoria has also worked its way into Internet stocks. Since Labor Day, the American Stock Exchange Internet Index has climbed from 160 to 178 -- a hefty 11% jump.
That's great news if you own high-tech stocks, but I want to remind you of one of investing's oldest lessons:
DON'T COUNT YOUR CHICKENS BEFORE THEY HATCH
When I look at most tech stocks, I see an abundance of Wall Street enthusiasm, but a scarcity of profits. I don't see the lean-and-mean hard work that breeds success.
Just take a look at some of the over-valuations of these widely-held tech stocks in the Nasdaq 100 index. Adobe Systems (ticker: ADBE) is selling for 31 times earnings. Amazon.com (ticker: AMZN) is back up to 41 times. Juniper Networks (ticker: JNPR) and Network Appliance (ticker: NTAP) are both at 43. Broadcom (ticker: BRCM) and eBay (ticker: EBAY) are selling at nosebleed levels of 60 and 62 times earnings, respectively.
But not all techs are so grossly overvalued.
For example, Cisco (ticker: CSCO) and Intel (ticker: INTC) are selling at 20 times earnings ... while Microsoft (ticker: MSFT) and Oracle (ticker: ORCL) are at 23 and 22.
Some of these are still a bit rich for my blood. But at least they're not in danger of crashing and burning.
Of course, there's a lot more to investing than just P/E ratios. So please don't interpret these two lists as buy/sell recommendations.
My main point is this: The dangers of old are returning to tech investing. But if you pick and choose carefully, you can find some real opportunities.
Everybody has to make their own decisions. But if you're a tech stock investor, I suggest you apply this simple 4-part test to your holdings.
1. If your tech stock hasn't produced at least two consecutive quarters of double-digit year-over-year earnings growth ... dump it.
2. If it hasn't grown its top-line sales by at least 20% in the last 12 months ... dump it.
3. If it has more than 50 cents in debt per dollar of shareholder equity ... dump it.
4. And if it has a Weiss rating of D+ or lower, dump it as well. For up to three free ratings, plus e-mail alerts regarding any changes, register at http://www.weisswatchdog.com/
But the single most important message I hope to send to you is that the best tech opportunities are not to be found among the over-priced, free-spending American tech companies, but in the lean, mean, and aggressive Asian markets.
One area, in particular, is showing great promise -- Japan [continued on the Japan Stock Blog].
« Any opinions expressed on the Seeking Alpha sites are those of the individual authors and do not necessarily represent the opinion of SeekingAlpha or its management. »
