One thing that becomes clear from my 25-year-old newsletter is the danger of ignoring excessive valuations.
I said, “For high-tech stocks, fundamentals hardly seem to matter. Even with profitable, high-quality stocks like CMG, Sage, Admiral, Logica, Sema and Misys, price-to-earnings ratios have become astronomical.
“Once they rise from a reasonable level of, say, 50 percent above the market average, it doesn’t seem to matter whether they then go to 40, 60 or even 80.”
But of course it did matter. Most of these stocks subsequently disappeared, but not before making and then losing eye-watering amounts of money for investors. In August 1997, software group Logica was trading at 130p, by March 2000 this was almost £23. In April 2003 it was 82p again. it floundered for another nine years before being acquired for 105 cents in 2012.
The exception is Sage, still a leading accounting software package. This too rose eightfold in the bubble and lost everything in the bust. But twenty years later, the share price is back at a new all-time high after reporting huge profits and a share buyback this week. Logics was the more well-trodden path.
A second lesson from my journey through millennium memory was how few British listed companies are expected to survive even a quarter of a century.
In the November 1999 issue, I also reported on the performance of a contrarian blue chip portfolio. The stocks that came through my screen were: Bass, Blue Circle, Gallaher, P&O, Rio Tinto, Royal Bank of Scotland, Safeway and Tomkins. Rio is the only survivor in his original form.
This says more about UK plc than about the stock markets in general. Of the top 10 companies by value in the S&P 500 index in 1999, only one – General Electric – is no longer with us. Microsoft, Intel, Walmart, Exxon Mobil, Coca-Cola, IBM, Merck, Pfizer and Cisco may not all be what they were 25 years ago, but they are still alive and kicking.
