Great Companies Make Great Investments--Right? Wrong. See Cisco

If you want to be a smart investor, you should scour the earth for high-quality companies and then make big bets on them–right? Wrong. You should find high-quality companies that you can buy at low prices. The high-quality part doesn’t do you a bit of good if you pay too much.

Case in point?

Cisco (CSCO).

Cisco’s a great company, right? Hell, yes. It dominates a rapidly growing industry with a fabulous future, and it has been growing like a weed since the early 1990s. If you bought Cisco in the late 1990s, however, you paid waaaaay too much for it. In fact, unless you bought it before 1998, you’d have been better off in cash. Cash! If Cisco treads water for another few months, it will have been flat for a decade. (And we won’t talk about how great an investment Cisco has been if you bought it in 1999, when it was trading at, gulp, $70).

So don’t fall for that crap about how great companies make great investments. Price matters.

See Also: Sorry, the Stock Market Is Still Screwed

See Also: Cisco: No V-Shaped Recovery Here, But Citi Loves It Anyway


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