I’ve by no means shared this story earlier than, however since we’re at a milestone, I’d as nicely…
February 2000: I used to be working as a strategist for a brokerage agency. My buddy Anthony had a global clientele, all deeply invested in US tech firms. His greatest shopper was flying in from the Center East for a mix New York Metropolis procuring journey/portfolio assessment.
His greatest place? Cisco (CSCO). Hundreds of thousands of shares value 10s of tens of millions of {dollars}…
I didn’t cowl the corporate (I used to be not an analyst). However I had views on the networking and telecom sector; I believed all the pieces within the “George Gilder Telecosm” was a catastrophe ready to occur. Gilder’s (costly) e-newsletter appropriately recognized budding expertise developments, but additionally possessed terrible timing. When his telecoms portfolio plummeted by about 90%, he had the nerve to really say, “I don’t do worth.” 1
However I digress.
Prepping for the assembly, I reached out to Paul Sagawa of Alliance Bernstein. Within the Nineteen Nineties, Sagawa was the axe on Cisco; for practically 20 years, he appropriately recognized the upside for the networking agency. However by 1999, Sagawa modified his tune. Cisco had change into an enormous market chief however was more and more shifting in direction of vendor financing. Within the late Nineteen Eighties, lower than 5% of Cisco’s shoppers used the corporate’s personal financing arm; a decade later, it was 90+%. “Purchase our useful cutting-edge expertise, we solely want your flimsy, VC-backed start-up to signal a promise to pay for it (finally).”
Sagawa appropriately noticed this as a budding catastrophe.
The market isn’t variety to inventory bulls after they reverse course and switch bearish.2 All through 1999, he went from a inventory analyst famous person to a persona non grata. His fall from grace was vindicated twelve months later, however earlier than the deluge, he was considerably of an outcast.
My agency was not even a Bernstein shopper; I took an opportunity and known as the quantity listed on his most up-to-date CSCO analysis. To my shock, he not solely answered the decision but additionally took the time to elucidate the scenario to me for an hour. Sagawa supplied the exhausting information and particulars for me to debate the draw back of Cisco with Anthony’s shopper, loaded with all of the ammunition wanted.
On the assembly, I began with the broadest overview: The inventory was up ~3,700% since its IPO. The Sheik sat impassively as he took all of it in. I drilled down into the small print, the seller financing, the altering expertise panorama. I didn’t really feel like I used to be making any headway, and didn’t wish to badger him. The very last thing I mentioned was “You’ve made immense returns on this identify, and we’re years into this bull market; my greatest guess is there’s extra draw back danger than upside potential within the high-flying names – and Cisco is the poster little one.”
I’m not a great salesman; I gave it my greatest shot, however didn’t count on a lot. I mentioned my thanks and left.
I used to be stunned a number of months later when Anthony got here into my workplace with a little bit thank-you reward for the hassle. “The sheik offered half, he’s thrilled with us.” On the time, Cisco had already fallen 35% on its option to dropping ~90%.
I had written concerning the Fortune Cisco cowl repeatedly – in 2000, then once more years later. It’s now a cautionary chapter in How To not Make investments.
Right here we’re, 25 years later, and CSCO has perked up. Quantum computing, AI, and Cybersecurity have the inventory rallying 28.9% this yr. It has not fairly reached $80.06, the dotcom peak in March 2000, however it’s lastly above the extent the place that notorious cowl story (“Irrespective of how you narrow it, you’ve received to personal Cisco”) got here out.
The important thing lesson is that media protection – of any inventory, asset class, or funding – ought to by no means be an alternative choice to your personal considering.
Supply:
There’s One thing About Cisco
By Andy Serwer, Irene Gashurov, Angela Key
FORTUNE Journal, Might 15, 2000
Beforehand:
2000: “Irrespective of how you narrow it, you’ve received to personal Cisco” (Might 15, 2023)
Can Anybody Catch Nokia? (October 26, 2022)
Why the Apple Retailer Will Fail (Might 20, 2021)
No person Is aware of Nuthin’ (Might 5, 2016)
How Information Appears to be like When Its Outdated (October 29, 2021)
__________
1. “Many of the firms listed have misplaced not less than 90 % of their worth over the previous two years, in the event that they’re even in enterprise anymore.” –Wired
2. I skilled this firsthand with EMC…
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I talk about the difficulty with the CSCO cowl in How To not Make investments: The concepts, numbers, and behaviors that destroy wealth―and tips on how to keep away from them.”
Its on sale at Amazon Cyber Monday Deal: $18.01
