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RVB's Market Musings

What began here as an avenue to interact and learn has far exceeded those goals.

If you are a prospective employer, please consider this site a place where you can see my passion for investing...

Wednesday, January 11, 2006

Why do we hold onto old tech stocks?

First, I have to confess that Cramer's show has prompted this blog. I do watch the show when I can because I find it entertaining. I don't necessarily always agree with him, but that's a different topic.

About 90 seconds ago, someone asked him about Cisco Systems (CSCO). Of course, he is negative on it. So am I.

It's not that Cisco isn't a good company. It is. But the product is really a commodity. I'm even a fan of the Scientific Atlanta (SFA) acquisition because I think internet and cable go together in more ways than people realize. On demand video and internet access are a match made in heaven. (The Electrical and Computer Engineer in me has been saying this for 3 years).

So my main question is, "Why do people hold onto the belief that glory tech stocks of prior days will once again rise from the dead?" In tech investing, we all know that new technologies lead the market. Let me say again, we KNOW that new technologies lead the market. Yet we hold onto "old" (read: mature) technologies. Why do people do exactly what they know NOT to do? Tech investing is COMPLETELY different than Warren Buffett style investing, and that's why Warren doesn't play in this sandbox. Buy and hold here won't work - if "hold" means to hold for 50 years.

Yet, psychologically we get addicted to a stock, and as we age we think it'll rise from the dead. So, if I were in my mid 30's when Cisco was the internet darling stock, now I'd be nearing 50 thinking it's still awesome. Am I just unaware of my emotions towards the stock? Is this investor psychology at it's worst, I.E. I'm holding onto something that really isn't there?

While I can't say for sure, I believe there's a link. I've seen many people make this error, both at the individual and institutional investor level. This thought prompts me to think that firms need to have minds from all walks of investing to be successful. It also leads me to believe that it is time for my annual reading of Trading in the Zone, by Mark Douglass. It is, in this blogger's opinion, the best investing book ever written. You may disagree but when it comes to the psychological aspects of investing I think you'll agree (yes the book has traders in mind, but in the end, we're all traders with different timeframes).

So, when it comes to tech, look around! Why would you have owned Cisco over the past few years when Sandisk (SNDK) has popped up to line the shelves of every Best Buy, Circuit City, Walmart and Target. In fact, you probably have Sandisk flash memory in your house and don't even know it. Just check out the 3 year relative performance! (Picture posting problems) SNDK wins by 637%.


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