Internet Investors Can Learn from Lessons of Early ‘90s
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
I am sharing with you the difference between investment and speculation. There is nothing better to illustrate an example. I found some old information in the internet days when lot of people thought it is very easy to make lot of money. Sure, some of them to start with look like they did made good amount of money but within a short period of time not only all of their profit was gone but some of their original investment disappeared as well.
The guru of investing Warren Buffet did not invest the nickel in so called get rich quick scheme; he stayed out of internet stock and continued his voice investment ideas.
Read some of the examples below and you will get the true picture what I am trying to explain, the difference between investment and speculation.
To our regular readers, I am sure you remember the article I wrote earlier on the Internet. I wrote to stay away from them, except for your risk money. In another article I suggested that if you can’t live without the internet stock; buy the only one on a steep (major) pullback. Watch it very close and have mental and actual stop losses.
Investors know Cisco Systems as one of the greatest stock-market winners of the 1990s. After going public in February 1990, shares of the networking pioneer have rocketed more than 36,000%. But it’s also a silver-platter example of how today’s best stocks can simply come from nowhere.
Some of the newspapers carried extensive articles about Cisco the day after its successful February 16 IPO. But Cisco didn’t fade from view. April and July 1990, highlighted Cisco and other members of the Computer-Peripheral equipment group of companies. Why all the attention to an unknown? Cisco showed uncommonly strong earnings growth, plus the new shares were already outperforming most of the market.
On the other hand, if you had blindly invested in some of the popular tech names of the 1980s, you might be scratching your head today about some of those decisions.
Ten years ago, Digital Equipment chief Ken Olsen scoffed at the idea of putting personal computers in every household. At about the same time, two “All Pro” brokers in Money’s survey named Digital a buy. But Olsen’s firm slumped in the 90s and is now a division of PC maker Compaq Computer. Apple Computer, which helped fuel the PC craze of the late ‘80s, is making a comeback with its new iMac brand. But over the past decade, the stock has gone mostly sideways.
Microsoft and Dell Computer will also make the best stocks list of the 1990s. But when they were young fries, neither made it into Money’s “All-Pro” list of picks.
Brokerage firms, TV shows and the financial press are never short of ideas on which stocks will be the next big winners. But they rarely pan out. What’s comfortable and obvious to Wall Street is not what generally works in the market.
The best way to find tomorrow’s big winner is to watch the market today. Sniff out the stocks outperforming the rest of the pack in terms of earnings growth and relative price strength. Then time your buys just as these leaders emerge from sound price bases. More often than not, you’ll find yourself purchasing companies that most other investors haven’t heard of. (To be continued)
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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