 |
Back in the 1990s, a wunderkind tech analyst at Goldman Sachs was once asked the best time to buy Microsoft (MSFT) stock. “Between 9:30 in the morning and 4 in the afternoon,” he quipped. “Whenever the market is open.”
That was certainly great advice during the go-go decade when tech stocks reigned supreme, and almost any position you took in technology software, hardware or services was golden if you had just a smidge of luck and a good eye for value.
Microsoft itself rose about 65,000 percent from its IPO in 1986 to its high in 2000 — turning a $1,000 investment on the day of its IPO into $650,000 about 14 years later. But there were half a dozen stocks that did as well or better. Data storage giant EMC (EMC) rose 87,500 percent from its 1988 debut to its high in 2000. Dell rose around 70,000 percent from IPO to the high, while AOL was up around 60,000 percent and Cisco Systems (CSCO) was up around 45,000 percent.
Great tech growth stories all: category killers, led by smart managers, graced with the good fortune of being in the right place at the right time with the right products.
But hey, guess what? Spoiler alert. Right now is an even better time to invest in tech stocks. And it’s easy to understand why, if you think about it.
 |
| Movies, music, stock trading, photo sharing. It’s all about mobile. |
Back in the 1990s, very few individuals used technology. It was mostly for companies. Microsoft’s software was primarily bought by businesses for their workers. Cisco’s equipment networked companies’ workers together. EMC’s storage units attached to giant mainframes. Dell’s low-priced PCs were mostly bought for desks in offices. Of this group, only AOL provided a consumer service, a clumsy dial-up product that we would now call an app since all activity was done within the walls of its quirky little domain.
Looking back on the products that launched such fortunes, you can scarcely believe any of these products or services were ever considered cool. Early versions of Microsoft DOS, or its first version of Word and Excel, or the 90s-era Dell computers are just laughable when viewed today. The artwork is clumsy, the speeds are painfully slow, it was hard to hook up peripherals like printers and speakers, and they were incredibly expensive. But man, you just had to have them if you could.
And by the way, back then in the supposed heyday of tech stocks, there was absolutely no consumer wireless. To have a car phone was a big deal; they were big and service was terrible. Later on, when the first consumer wireless phones emerged from Nokia and Motorola, they could not do anything but, well, dial other phones. No texting, no Internet, no cameras, no Netflix, no MLB highlights. There was one game, called Snake. So lame.
Yet sales rocked and shares of those companies made savvy early investors fortunes. At the end, sure, everyone knows by now, they became over-loved and over-valued. But don’t forget the good times that came first. Or the fact that their demise was easily seen well in advance, by myself and others.
Now let’s fast forward to the present. Techs went through some dark times, but now on the other side the prospects are brighter than ever. More amazing than those pioneers in the 1990s could have even dreamed. The products and services available now, even to kids for pennies, are absolutely astounding. For a time traveler from the 1990s to today, it’s like going from a fuzzy black-and-white TV to Technicolor HD on a six-story IMAX screen.
And the fortunes being made today? Oh, brother. In the private market, how about that guy who sold his messaging app to Facebook the other day for $19 billion. They don’t even make enough zeroes to calculate the ROI on that guy’s early investors. It took years for the likes of Dell or Microsoft to reach $5 billion in market cap. That can happen now in just a few months.
Why? It’s all about mobile. That thing in your pocket that you call a smartphone is really a computer. Instead of buying software for $100 on disks from stores and driving home to install it on your desktop, you download an app for $1 or less through the air, and you are good to go. Movies, music, stock trading, photo sharing — all available instantly, at very little cost, and so simple that children can operate it all without reading a single manual. Even old people can do it.
Millions and millions of people. Billions of people overseas. Even in remote areas of Africa and Indonesia, a person without running water can be a click away from the knowledge of every library on earth through a Web browser or an app on their phone. Knowledge is power and power is so very valuable. The new world of mobile communications is empowering unusual people in faraway places to connect and create things and services that were never previously imagined, and that incredibly rich outpouring of innovation is making this time, right here, right now, the most amazing time ever to be an investor.
So many incredible companies are being created now to build communications apps, marketing tools, social media connectivity, games, search engines, photo-sharing platforms and analytics services that you scarcely know where to begin as an investor. And the hardware, too, both in terms of new movement-sensing chips like NXP Semiconductors (NXPI), camera chips like Ambarella (AMBA), or handheld devices like the iPad of Apple (AAPL).
This is truly the best time to be an investor in technology products that I have seen in my 35-year career. And the good news is that most of the time, investors are quite skeptical of the prospects of young companies. They remember being burned in 2000 and 2007. They are cautious at first and usually fail to value the companies as highly as they should at the start.
And that is the best development of all if you are the type of person who doesn’t mind rolling up your sleeves a bit to understand what the companies do, how they make their money, how unique their products are, how robust demand is, how capable management is, and what the difference might be between their current value and what they will be worth once they have a few more years of experience.
If you can do that effectively, and retain the capacity to dream big in the process, then you can arbitrage, or profit from, the difference between the cautious price set soon after an initial public offering and the ebullient price seen a couple years down the road when the firm is much better known and its value is appreciated by many more people.
The next Microsoft? The next Dell? We can do better than that. The past is but prologue.
Best wishes,
Jon Markman
P.S. Let’s talk tech stocks! Here’s your chance to ask me anything you like about technology stocks: Simply click this link to jump over to the Money and Markets blog. I’ll check in during the day and give you my best answers to your questions.
I won’t be able to do this forever, so be sure to join the conversation right away: Just click this link and let’s get the conversation going!
