Warren Buffett“A public opinion poll is no substitute for thought.”
Adlin Sinclair“Success is a welcomed gift for the uninhibited mind.”
A decade later, lessons in the Nasdaq collapse (Reuters)
SAN FRANCISCO (Reuters) –
Ten years ago today, before the
burst, the
hit a record 5,132.52 points — a peak that the technology-heavy market shows no sign of scaling again any time soon.
start-ups with not a scrap of revenue — sales and profits, or at least the prospect of profits, matter.
Today, the Nasdaq index (.IXIC) rests at less than half its peak, and many of the biggest names from 2000 — IBM (
.N),
.N) and
.O) — are trading more like traditional stocks, based on their fundamentals.
, the companies of the future, has become trickier, investors say.
“Tech stocks were once viewed as unique and different, an industry that would grow rapidly and support extraordinarily high valuations,” said Ken Allen, portfolio manager at
T. Rowe Price
. “We learned a lot about the flaws in that logic. Tech stocks by and large are pretty comparable to other stocks.”
Shares of select tech names have thrived over the past decade. These include companies such as
.O),
Amazon.com
.O) and
RIM.TO
), which have products that defined their category.
.O) and
Salesforce.com
.N), which went public in 2004, have seen their shares more than quadruple.
But many of technology's leading lights have never come close to regaining their past glory. Shares of Cisco Systems Inc (
.O),
.O) and
.O) are down more than 50 percent from that time.
Price-to-earnings multiples have compressed over the past decade as tech investing has become more “rational,” said Jeffrey Lin, an analyst at
TCW Group.
Microsoft's trailing price-to-earnings ratio topped 70 times in early 2000, and today it is roughly 16 times. IBM's P/E ratio was more than 30 times in 2000, but now sits at 13.
“I feel good about tech stocks this decade because we don't have this big valuation headwind like we did 10 years ago,” Lin said. But he estimated the
will take another seven to eight years before it can surpass the March 2000 peak.
In the late 1990s, investors bought shares at sky-high valuations and paid for growth they assumed would materialize.
(.
) was meteoric and, in retrospect, absurd. The index surged from 3,000 to above 5,000 in four months.
The January 2000 Super Bowl football championship was probably the clearest sign of an impending crash, with the broadcast overrun by dot-com commercials. Firms from the now infamous pet supply retailer
pets.com
LifeMinders.com
forked over more than $2 million each to buy 30-second TV ads.
Barry Eggers, a founder of venture capital firm Lightspeed Venture Partners — an investor in companies such as
.O) and
.O), and more recently social gaming firm Playdom, said he remembers getting nervous as he saw the “froth” in the market.
Companies and their VC backers had been under tremendous pressure to go public quickly, he said.
“Those were the days when it was a lot easier to go public, and if you didn't get public or get acquired for a large number, it was a very unsuccessful outcome,” Eggers said.
Today it takes roughly seven to eight years for an initial investment in a company to make a return, he said, but in the tech boom, it took only three to four years.
.” Now he said, “We've learned to be more patient.”
Venture capital firms were hit hard when the bubble burst, and more recently when the financial crisis and recession struck. In 2009, VC fundraising fell 47 percent to $15.2 billion, the lowest level since 2003, according to data from Thomson Reuters and the
.
Tech investors as a whole have learned to be more patient as industry growth rates normalized. But divining the latest hot trend — whether it be social networks, social gaming or mobile Internet — is more challenging than ever.
),” said Broadpoint Amtech analyst Brian Marshall.
He recommends that investors find “idiosyncratic, secular growth stories,” such as Apple,
.N) and
.O), as new technologies like smartphones and virtualization disrupt older ones like PCs and servers.
“You want to play the themes that have the most robust outlooks, and then you identify the leaders that have the best opportunity to grow,” he said.
in 2009 and 2010 will mirror that of 2003 to 2004 when the market emerged from the dot-com crash, and thinks money will soon head for
over value.
He said the Nasdaq could make it all the way back to the March 2000 heights in five to 10 years.
“I hope,” he added.
(Reporting by Gabriel Madway, editing by Tiffany Wu and Robert MacMillan)