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Where are all those people who at this time last year were telling us that the tech rally would never end, and that buying stocks like JDS-Uniphase at 300 times earnings was a good deal (when the stock was $150 and today $18)?
Let’s take a look at one of the more visible (and wrong) tech bulls, Jim Cramer, well-known CNBC commentator and founder of thestreet.com.
Here are some quotes he made on February 10, 2000, in an on-line chat session he held for his followers.
Question: Jim, 5 stocks to buy right now as core holdings for the next 5 years?
Cramer: Yahoo (Nasdaq: YHOO), America Online (NYSE: AOL), Sun Microsystems (Nasdaq: SUNW), Nokia (NYSE: NOK), and Cisco (Nasdaq: CSCO).
The following are the prices of those stocks on February 10, 2000, the day of the Cramer interview, and next to it is the price on Tuesday, May 29, 2001.
YHOO ($170 then, now $18.79), AOL ($55 then, now $51), SUNW ($45 then, now $18.67), NOK ($45 then, now $30.35)
CSCO ($60 then, now $20.40)!
Pretty pathetic, huh?
Here is something that shows even further how arrogant and wrong the tech crowd was last year: Another question for Cramer later on in the interview.
Question: True of false? $10,000 in Berkshire-Hathaway becomes $1 million + in 30 years.
Cramer: False. Unless Jimmy (he is talking about himself) “I love tech” takes over for Warren “I hate tech” Buffett.
Imagine the disaster that would have befallen BRK shareholders if by some unfortunate circumstance, Mr. Cramer did have a chance to “help” BRK shareholders.
Much of last year, Mr. Cramer was quick to trash Mr. Buffet every chance he got, both on Fox TV and in his writings at thestreet.com. Long-term investing was obsolete according to Mr. Cramer.
Mr. Buffett was a has-been (who is laughing now?). One shareholder at the BRK annual meeting in 2000 even got up and scolded Mr. Buffett for not participating in the tech rally. We wonder what this fellow would say now!
As things stand today, most BRK shareholders would likely want to pin a medal on Mr. Buffett for avoiding the train wreck that has become the tech-wreck of the last 15 months.
We do not mean to pick on Mr. Cramer too much – it is just that he is so visible and such a good example of what was going on during the salad days of the tech rally. To put it quite simply, seemingly sane people lost their heads and, in the last 15 months, a lot of dough!
As we see it, stocks like Cisco, JDS-Uniphase, Juniper, Ciena, EMC, Corning, and Nortel are still badly overpriced.
The weakness in the NASDAQ this week has been mostly concentrated in these types of (former) hero stocks.
They still have a ways to go on the downside before the bottom is reached, in our opinion.
We would guess that Cisco might reach the $9 to $10 area before this stock bottoms out. Simply put, the stock was absurdly overpriced when it was $80.
But, did any of the brokerage firms tell you that? No. They said with a straight face: “Buy” at $70, at $60, at $50, at $40 and at $30 – and look what happened.
A recent study of Wall Street research revealed that fully 97 percent of the recommendations on Wall Street were “buy” recommendations. Of course, we should not be surprised – it is the nature of the beast.
If you are going to pick your own stocks, you are going to have to become your own research analyst. It is not easy to do, but it can be done. If you enjoy doing this type of work, you can come up with the answers yourself.
Now, we have previously mentioned a little-noticed event that occurred in early 2000 that we believe was the first bang of the tech collapse. That was the court ruling against Microsoft (Nasdaq: MSFT) in March of last year. If you look at the MSFT chart, you will see MSFT started to fall before the rest of the tech market and nine months later, the rest of the tech stock charts looked just like MSFT.
But let’s look at what has happened since the court ruling went against MSFT.
As the competition has grown weaker, MSFT has in fact grown stronger.
We should hear soon that the appeals court has ruled in favor of MSFT (and we must mention we can give no guarantees of that – it is just our personal opinion).
While most every tech company these days is reporting falling revenues and earnings, MSFT last quarter reported strong earnings (9 percent gain) and revenue gains (10 percent gain).
I brought MSFT to your attention in the March 23rd WND column (see archives) with the headline, “Microsoft Is A Stone-Cold Buy.” The price then was $56.50. This week, MSFT has been trading in the $ 69 to $70 area, even in this very weak tech.
This week, while the tech stocks have been going through sinking spells of institutional selling, MSFT has been going sideways. That, we submit to you, is a victory for MSFT and suggests to us that there is still time to buy this outstanding company. MSFT has emerged from the dust-up with the Clintonista lawyers as strong as ever.
We see the future for MSFT as being very bright and it is a stock, we believe, you should consider adding to your portfolio.