Time To Talk
24 June 2021
No inspiration for this post: in all honesty, I understand neither the level of valuations, nor the speeches heard to explain these levels. And in telling you this, I am well aware of repeating myself, and I apologize for that. As I can't get anywhere with the present, I have time to dig into the past.
Here is an excerpt from a glowing Fortune article from May 2000 about CISCO (which we translated):
"Suppose you were stranded on a desert island and could only own one stock. Which one would you choose? [...] A stock that is trading at over 100 times earnings? A stock that has already risen about 100,000% since it went public ten years ago [...]? Yes, that would be that stock. You can take it any way you want, you must have CISCO. In 1995, when Chambers became CEO, Cisco had a market capitalization of $9 billion. Today [2000], it's 54 times that. So he has created $480 billion in shareholder value. [...] So, isn't John Chambers the best CEO in the world?
[...] Finally, a bet on Cisco is a bet on the growth of the Internet.
[…] The problem with this stock is not whether the company will make it - the answer is yes - but its valuation. One observer recently said that if CISCO had the same multiple as Microsoft, it would be at $20. The stock is now worth $68 [in 2000]. [Microsoft is an old-world company. Cisco is not.
[So] would you have a good reason to sell this stock now? I don't think so! [...] And if you think it's too late to buy it, remember the old adage: ''Take advantage of pullbacks to buy!." Those who just bought it under $60 got a great deal.''
One year later, CISCO was worth $20 and ten years later it was worth $18. You can take this article and replace CISCO and John Chambers by the pair of your choice: Amazon - Jeff Bezos, Salesforce - Marc Benioff, Tesla - Elon Musk, Netflix - Reed Hastings ...
By the way, I note that in the decade that followed, whether or not there was inflation, currency movements, central bank intervention or the 2008 crisis, the conclusion does not change. The problem, as the journalist himself wrote, is the multiple of CISCO in 2000. Today, the multiples of Amazon and Netflix are of the same order of magnitude as those of CISCO at the time. And those of Tesla and Salesforce are still a notch higher.
Have a great week,
Charles
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