Back in the Halycon days of the tech bubble there were 4 Wall Street darlings that made investors a fortune. In the beginning there was Dell, Cisco, Intel and Microsoft who were commonly referred to as the “Four Horsemen”. Everyone used to love these stocks and they were found in countless portfolios that is until the “Tech Wreck” of the early 2000’s. A quote from an article I read during that period stuck in my mind, “It used to be that no one ever got fired for buying IBM, but now no one gets fired for buying Microsoft”.
Much has changed since the early 2000’s and today it seems most people have given up on these companies and some actually hate them. The Four Horsemen have been put out to pasture and are considered “uncool” to own.
Dell fell out of favour facing stiff completion, losing both market share and profitability. For a period of time Hewlett Packard appeared to be having Dell’s lunch, but now all the PC manufacturers are facing stiff competition and a slowing of the upgrade cycle.
Cisco lost its way and ventured off in to the wilderness with things like the “Flip” video camera and allowed their highly profitable core businesses deteriorate. Cisco still makes many of the components that allow the internet to function but their lack of focus has allowed competitors like JDS Uniphase and Juniper Networks to set up shop in their backyard.
Intel has mainly lost in the perception department particularly at the Goldman boys trading desk. Intel continues to perform and crush estimates but the Goldman gang has a thing for them so their ratings are consistently negative. Yes Intel was slow to get to the tablet party but their very high margin server business is more than adequate to make up for the fact that they are playing catch up in the mobile arena. After all much of what makes or brakes the viability of the tablet is the “cloud” and the internet that makes it possible, much of which is driven by Intel’s high end servers.
As the tablet, mobile internet device, and general internet innovations markets grow so does the demand for Intel’s high margin chips. Of course the Goldman boys believe that lower margin tablets will make more money, well I guess that will remain to be seen. I liken it to the profit margins on LCD and Plasma TVs which were high initially but as more models and competition emerged the costs came down but so did the margins. As Warren Buffet might say Intel has a pretty wide moat in many areas and while there are skirmishes on the periphery they have the means, innovation and the war chest to maintain their edge. I have covered Intel in the past and do have a position in the company.
Today the “Four Horsemen” are very different companies from those early days and many people still try to view then from the lens of when they were high growth companies, instead of the mature companies they have grown to be. Today things are different not only for these companies but for investors themselves. The economy and market are such that we have slipped back to 1999 levels and while back then we were all partying today people are looking for some level of safety.
I like many others learned at a relatively early age about the “miracle of compounding” which is by far less sexy than cashing in on the next Google or Apple, but also very lucrative. Compounding will not make for exciting cocktail hour chatter but it does allow one to grow their assets in a slower but generally less risky manner. Sure it is great to hit the home run and get rich quick, however, for every investor that does just that there are thousands that get nowhere.
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I post this column on Thursdays here at Benzinga although I do have my own blog (monetaadvisors.com) where I cover stocks, commodities, precious metals, currencies, markets, government and interesting general observations that may not get play on Wall Street as well as subjects that interest me and hopefully you too. I also have a Twitter Feed @monetaadvisors if you are interested. I am a Series 65 Investment Advisor Representative and have recently started my own investment advisory called Moneta Advisors, LLC, based in the Boston area. I have been through a series of careers from which I have learned many useful things along the way. In my past I have been a stockbroker, computer programmer, Sr. computer consultant, and ran a manufacturing company; all the while I remained a private investor. – Roger Vertes
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