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Post of the Day
May 21, 1999

From our
Dell Computer Folder

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Subject: Growth Stock Investing.....and Dell
Author: BruceBrown

Once again, Dell did not disappoint this long term growth investor with the recent quarter results. In, what is otherwise a very difficult quarter for the box makers, Dell managed their numbers extremely well and continues to prove they are growing 2 to 2.5 times faster than the competition. What was the share price of Dell in January? What was the shareprice of Dell in November? What about last October? Let's say we go back to May or June of 1998? How about August of 1997? Shall we take a look at February 1996 or even back to my entry point back in early 1995?

Gee, am I awfully disappointed that I chose to invest in a company that beat my standards of growth rate that I was looking for at the time. I was hoping for 20 - 25 percent. That's still my hope. It's Dell's fault if they top that and the share price keeps going up a healthy percentage year after year. Do I care if it goes up 100 percent or 30 percent in a year? No - it still beats my original goal of 20-25 percent per year. As a growth investor, shooting for too much over that starts to get unrealistic and risky. Yes, I'm a long term growth investor. I'm disappointed in what has become some unrealistic expectations in the market place. I'm certainly not disappointed that some of my stocks have doubled, tripled and quadrupled in less than a year. I am disappointed that they have done so without deserving it. I shake my head and laugh at AOL, AMZN, DCLK, EGRP, CSCO, EMC, IBM and a few others. I'm not saying that any of these deserved or didn't deserve the share price appreciation, but in the big scope of long term investing I have to wonder just what kind of expectations are out there.

Eric Gustafson, fund manager at Stein Rowe, stated last night on CBNC's Bull-Bear debate with David Tice that he doesn't own Dell and wouldn't own Dell. He's said this for quite some time. Tice - well the man can hardly stutter through a sentence that makes logical sense let alone say anything of investing value to the public. Why do they continue to have him on as a guest? He must pay a fee to appear.... Nevertheless, I highly respect Eric's opinion (in general that is), but not on the Dell issue. If you take a look at his fund's performance over the past few years, you will see that Dell has beat it handily. Dell at 50 percent growth. Dell at 40 percent growth and Dell at 35 percent growth could have helped his portfolio. Let's say Dell, as has been predicted for quite some time now, slows to a growth rate or 27 to 35 percent year over year. That could still help Eric's growth fund's returns. Yet, he doesn't want to own it. The Internet is still in batting practice (as his partner says) - yet what exactly will we need to use the Internet. His play is with the telcoms and service providers. Fine. We should all be playing that growth strategy as well. However, Dell makes some products that are going to be pretty darn important for the Internet to even exist. Until that changes, I want them in my portfolio.

Even if the share price exactly one year from now is 50 to 58 - I'll be happy. That's a decent return for one year historically. So the PE has to come down and the growth rate is slowing. Does that mean we dump the investment and chase something else. Is a 20 - 25 percent return year over year something to scoff or to revolt from? Not too many were wise enough to predict the future and sell when it was around 55 a share. Greed stepped in the way at the time. However, with time we will see that price again. A little more time.

Speaking of time, I'm sure many of you have seen the magic number here at TMF - 7300 days. That's 20 years broken down into 7300 days. If you are a long term investor and can pay attention to that number and not the daily chit-chat, upgrades, downgrades, mo-mo, interest rates and general 'noise' - you will begin to see how insignificant short term moves become. I've owned Dell for more or less 1460 days (one fifth of the 7300 days time frame). 300 shares that became 9600 shares thanks to the splits. I sold a few early this year to spend a little money. However, I bought them back when the price was down between 35 - 39 last time around to bring my total back to the 9600. Do I expect my investment in Dell to return over the next 5840 days the same as it has the first 1460 days? No, of course not. That would be pretty unrealistic. Do I expect it to return at or above the historic rate of growth return? Yes. I think that is not unrealistic.

I believe in the business model, management and product that Dell delivers and am happy with this investment. There are others that I am happy with as well and look forward to the next 5000 plus days with their business models and management teams.

Put it all in perspective and choose good companies to invest in for the long haul. Don't be scared out by Black Ducks, the pundits that computers are finished, and the like. Dell is an excellent growth stock. Sure, there are others that have the advantage of having proprietary hardware or software which gives them a safety net for the investor because the risk is then subsequently diminished due to the 'Gorilla Game' factors. However, keeping a well rounded portfolio that is diversified for growth through various sectors and industries will make those 7300 days quite fulfilling in terms of investing.

No more opera until September 2nd for me, so I'm retreating back to my hiding hole now in the woods and the golf course for now....

BB