Posted on November 27, 2012
As noted in my last post, I originally read “Adam Smith’s” The Money Game at the peak of a speculative market in 1968. Since then there have been a least three additional frightening collapses: (1) Junk-Bond Takeover Bust of the late 1980s, (2) Dot-Com Bubble at the turn of the century, and (3) Great 2008 Recession. Investors who experienced those events no doubt remember the losses as massive. Yet despite three debacles, the Dow Jones Industrial Average increased nearly 1,400 percent since 1968 providing a compound annual rate of return of almost 6%. Moreover, academic research normally uses the Dow -or similar – index as a proxy for overall stock market performance.
I question whether the six percent figure is valid.
The reason I doubt it is because the Dow Jones appears to be a “rigged” Index. Furthermore, all indexes seem to be similarly “rigged” for two reasons.
Frist, many of the most popular stocks during a speculative boom that later go bust, never get into the applicable index. Two examples are National Student Marketing and MP3.Com each of which once traded at over $100 per share. Both were popular with “performance” mutual funds, which means a great many investors were indirect shareholders. The endowment funds of the University of Chicago, Harvard and Cornell held stock in National Student Marketing as did Morgan Guaranty, Bankers Trust, Northern Trust, and General Electric Pension. Read more…
Posted on November 19, 2012
Addicted investors experience a boom-to-bust cycle much like a romance that ends badly. And like such romances, the first is always the most passionate. For me it was the late 1960s, although I was warned almost precisely at the top upon reading “Adam Smith’s” The Money Game in June 1968. But like a naive youth gradually losing his girlfriend to an unknown rival, I kept dating her for another year despite surprising and painful consequences. Fortunately, we broke-up while I still had enough money to finance a graduate education that landed me on Wall Street in the early 1970s.
But I would never again be so trustful of the market. I had learned my lesson. Or had I? As John Brooks put it in The Go-Go Years when commenting upon the message of Proust’s great book, “man’s apparent capacity to learn from experience is an illusion.” We fall in love again. The cycle repeats as evidenced by the dot-com period of the 1990s or the junk bond takeover era of the 1980s. Read more…
Posted on November 8, 2012
Woody Allen once made a science fiction movie parody entitled Sleeper. His character is awakened two hundred years after being cryogenically frozen in 1973. Although initially groggy, once he becomes alert he happily comments, “You know, I bought Polaroid at seven. It must be up millions by now.”
Despite an early 1970s triple digit stock price and a CEO with a captivating personality later emulated by Steve Jobs, Polaroid Corporation went bankrupt in 2001. Along with a great many 1970s-era investors, Allen failed to realize that the chemical process of film imaging was near a technological dead end. In the rearview mirror, Polaroid’s fate should not have been a surprise as underscored by the amplifying evidence of Kodak’s demise a decade later.
The first rule of technology stock investing is to accurately identify the current state-of-the-art within the applicable industry’s life cycle. For example, in the 1970s Kodak and Polaroid could make picture taking incrementally more convenient, but film technology was unlikely to ever reduce the consumer’s cost-per-snapshot or provide the versatility promised by the future of digital photography. In contrast, it was simultaneously becoming evident that semiconductor integrated circuits were beginning to comply with Moore’s Law whereby the cost-per-function dropped by half every eighteen months. Furthermore, the underlying miniaturization processes to manufacture the chips could be repetitively improved thereby implying the Law would last for years, if not the decades that it has actually persisted. Read more…
Posted on November 1, 2012
Last month Samsung introduced a new model of the Google Chromebook laptop computer priced at only $250. It may be the first computer using Google’s Chrome operating system priced aggressively enough to merit serious consideration. It is also a prototype version of a “Post-PC Era” computer.
Chromebook is designed with Cloud computing as its defining characteristic. There is no hard-drive because archival data and applications are maintained in the Internet Cloud on Google servers. Although icons for word processing, spreadsheets, presentations, and other applications appear on the computer screen in the normal manner, the applicable programs and files are actually located in the Cloud. When owners click-on one of the icons the pertinent program is transported over the Net and downloaded into Chromebook’s solid-state memory where it is cached while in use. Once the work is completed and saved to the “Google Drive”, it is returned over the Net to Google servers where is retained until summoned for use again.
Cloud computing endpoints, such as Google Chromebooks, can be designed without regard to the legacy restrictions of Microsoft or Apple computers. Those units were invented as isolated processors in an era preceding even the Local Area Networks (LANs) that emerged in the late 1980s. Consequently, Cloud computing endpoints can offer a number of advantages. Read more…