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Balaji Viswanathan
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I'm the co-founder of a financial startup -ZingFin.com. At ZingFin.com we are working to bring tools to search and analyze numbers and statistics related to your investments/ I have bachelors degree in engineering and Masters in Computer Science. For the past 6 years, I am an active investor in... More
My company:
ZingFin Technologies
My blog:
Demystifying finance
  • Great Tech Companies Don't Come In Isolation 0 comments
    Feb 15, 2013 11:30 AM

    Great tech companies come in waves. The 5 great companies that entered the stock market between 1986 and 1988 are among the all time fastest growing stocks in history. These 5 young companies relying on PC - Microsoft, Dell, Adobe, Oracle and Intel became the investors delight of 1990s. In 1990-92 these people where joined by the networking giants Cisco and Qualcomm. The fortunes all peaked in 1999.

    1. Cisco. The company IPO'ed in 1990 and had had grown 1050 times during the decade peaking in 2000.
    2. Microsoft. The company IPO'ed in 1986 and by 1999 the stock had grown 750 times. If you had put $10,000 in Microsoft's IPO in 1986, you would have ended up with a cool $7.5 million in 1999. In the same period, its IPO buddies Adobe grew 200 times and Intel 171 times.
    3. Dell. Like Cisco and Microsoft, Dell had a great ride during the 1990s. From its IPO in 1988, it grew 570 times. In the same period, its IPO buddies Oracle grew 247 times and EMC grew 1000 times.
    4. For the mid-late 1990s, the dream stocks were Yahoo and Nokia growing 47 times and 24 times respective from 1995-99 riding on the mobile and web boom.
    5. For the early 2000s, the leader was RIM (the maker of Blackberry). Since IPO'ing at the worst point in 1999, the stock grew 24 times to peak in 2006.
    6. For the 2000s, the dream stocks are Google and Apple riding on the web and smartphone boom. Apple stock grew 100 times from 2003 to its peak in 2012. Google had a slightly modest grown, growing 6 times in the same period.

    All these companies are still making profits, but their fortunes are different.

    Moral 1: Great Companies don't Come Alone
    The moral of the story is that great companies seldom happen in isolation. Microsoft IPO'ed along with its complementary companies Intel and Adobe. The 3 big enterprise biggies - Dell, Oracle and EMC came in the next wave.

    Great companies come in waves and their stock fortunes depend on the wave for that period. It is extremely critical to understand the wave, as these are more important than their individual balance sheets.

    Moral 2: Fundamental Analysis is useless for tech companies.
    Microsoft's balancesheet is as stellar as it was in 1999. But, the stock has not grown in the past 14 years. Same for its IPO buddies and most other companies at the top. Oracle, Intel, Cisco, Microsoft, Adobe are still raking enormous profits, but their stocks have not recovered their late 90s peaks.

    When you are analyzing tech companies, financial analysis is generally useless. You can probably say which ones will fail, but the fundamental analysis cannot help you say which one will succeed.

    Moral 3: Look at the forest, not just individual trees
    Without understanding the wave, all your fundamental analysis would not have saved your investments in Microsoft, Oracle, Cisco and Intel. You need to understand the correlation and trends. You need to watch out for the patterns.

    Instead of getting lost on individual trees, look at the forest. Broader market trends dominate the fortunes of tech companies. These trends can reverse extremely quickly. Keep watching these trends.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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