I initiated a position in Cisco Systems, Inc. (CSCO) in mid-November 2010 and aggressively added to my position on two occasions at the end of June 2012; I hold these shares in a ‘Core’ account within the FFJ Portfolio.
In mid-August 2019, I acquired additional shares and hold these in a ‘Side’ account within the FFJ Portfolio.
CSCO’s valuation at the time of these purchases was attractive. The same, however, can not be said for some of my co-workers who aggressively invested in many high-tech companies during the dot-com bubble.
I distinctly remember when the one-day appreciation in the value of their investments (CSCO was one such investment) often exceeded their daily employment income.
Many of these co-workers, however, failed to exit their positions before the precipitous drop in the share price of these companies! Some had even employed the aggressive use of leverage; a few years later they were still repaying the debt they had incurred for what ultimately became worthless investments (ie. several companies went bankrupt).
CSCO did not go ‘bust’ but if we look at its stock chart dating back to January 1, 1996, we see what happens when emotions influence investment decisions. An investor who acquired CSCO shares between late January – September 2000 and never exited their position would still be ‘underwater’….more than 2 decades later.
Fast forward to the present and I have this ‘it’s deja vu all over
again’ feeling as Yogi Berra so eloquently stated. Many investors are
once again treating the equities market as a casino. Now, however, we
have a low-interest-rate environment which has led to historical levels of margin debt.
At the time of the dot-com bubble, interest rates were much higher than
current interest rates. Investors essentially had other investment
alternatives. In the current low-interest-rate environment, however,
money has flooded into equities because the rates of return elsewhere
are dismal. This has led to many wonderful (and not so wonderful)
companies being grossly overvalued!
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