A Very Cisco Christmas
Great news for patient bagholders
Back in the bubble of the late 90’s, Cisco Systems was seen as an almost certain winner of the burgeoning internet era. At its peak, in March 2000, the company commanded a P/E multiple of over 100x.
Investors were right about the bright future ahead for the company. Since that peak, revenues are up over 5x, profits up 4x, and EPS up 8x.
The stock? Well, just last week, it finally broke up above the $80 split-adjusted share price it traded at almost 26 years ago…
Nobody knew that March of 2000 would be the peak of the internet bubble. But investors who bought the stock at that level went on to experience a 90% drawdown over the course of the next year.
The thing is, you were right to be optimistic about Cisco’s bright future back then. The company really did turn out to be one of the few big internet infrastructure winners. The only problem was the price!
Cisco 2000 is a classic example of why you don’t want to pay too much for a company - even a great one with a bright future ahead. There are perhaps more than a few stocks that fit this bill today.
Investors who bought post-hype have actually done really well in Cisco stock. It’s a solid company that has compounded earnings and reliably returned cash to shareholders over the years. It’s been a strong investment. The key, though, was to buy it when most investors had soured on the story… not when they were clamouring to buy it at any price.
And for anyone who has been holding since March of 2000, it’s at long last time to celebrate a new high. Just in time for the holidays!
See you next year
I owe a debt of gratitude to those who take the time to read this newsletter every week. It means a lot to me that you take the time to read my random, unpolished ramblings. I hope I add value.
Wishing you all a fantastic Christmas season and all the best in 2026.
I remember at though it was yesterday - I had lunch with a client in the Spring of 2000. The entire lunch conversation was about how stupid I was not have Cisco in his portfolio. We had owned a few tech stocks but had sold them two years earlier in mid 1998, thinking they were overvalued, especially for a "value investor" like my firm. We did not have another meeting for a year. In that meeting and in every meeting since, in 25 years, Cisco has never been mentioned.
The Cisco story is a perfect case study for valuation discipline. I remember reading about people who held since 2000 thinking it would eventually come back, and 26 years is a brutal lesson in opportunity cost. Even if the company executed perfectly (which they did), overpaying wipes out returns for decades. This same dynamic plays out in every bubble but poepl always think "this time is different." I've seen friends make similar mistakes with recent IPOs, buying the story without checking the price. The part about buying post-hype is key tho, thats when actual compounding happens without the multiple compression headwind.