Stock Lesson VII

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Next Microsoft. Next Bill Gates. Next Google. Next…

We all want to get the hold of “next big thing” before it becomes real, don’t we? Think about this, the stock of Cisco, the networking and communication company, increased 73 times from 1990 to 2000 in 10 years. The Microsoft stock’s performance was similar. 

From time to time, when a young company came up with some cool product or service, and performed well in the market and financially, people will praise it as “next Microsoft”, and think its founder will be next Bill Gates. The reality is, except Google, no company has come close to Microsoft in past 10 years. But sometimes we innocent investors (like me) fell into this trap.

In year 2000 dot com mania, I was looking for a job in the IT industry. There is an e-coomerce company in Austin labelled itself as “next Microsoft”, and its founders are smart people from Stanford. I did not got the offer because I did not pass the second round “behavior questions” interview. A few years later, that company laid off many people and outsourced to India. It’s still in operating as of today but it’s in no way can be compared to Microsoft.

In last two years, Shanda Interactive, the Chinese Online game operator, enjoyed the joy ride in the Wall Street because its rapid earning growth. Its founder and CEO, Mr. Chen Tianqiao, was praised as “China’s Bill Gates” by many reporters and analysts. And the bad thing is I bought into this idea too. Last fall, we all came to the reality. Chinese kids got  tired of Shanda’s Legend II game, and its earning plummted. Its stock went from the 40 to 13 in a few months.

So the lesson here is: while we are looking for good growth companies and smart management people, don’t think they will always turn out to be reality. Because sometimes the look can be deceiving, especially the pictures on magazine cover 🙂

PS, related to the magazine pictures, I heard an unofficial rule: the stock of the company may be at peak when its CEO are all over the magazines. Because all the good news are factored into the price of the stock.         

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