FOOL ON THE HILL
An Investment Opinion
At the end of last week's episode, we were just getting fired up over a good segment featuring Roger McNamee of Integral Capital Partners, when he was abruptly cut off by the commercial break that precedes the opening bell. I couldn't help but be reminded of Bill McKibben's description of a similar experience while watching Good Morning America back in 1990.
"[I]f something exceptional happens it hardly matters -- it is quickly forgotten, averaged out, eroded by this ceaseless flood. On Good Morning America, they're interviewing Teddy Kollek, the mayor of Jerusalem, who is saying a few interesting things about a recent visit from Vaclav Havel. But as soon as he's finished, or maybe slightly before, the host is saying, 'Mr. Mayor -- always outspoken, always feisty, always good to see you. How to prepare for a record invasion of gypsy moths that may be coming when Good Morning America continues.'
"If the only TV you heard all day was this five-minute talk with Teddy Kollek, it might linger in your mind -- you could mull it over. But it's instantly replaced by a man who's talking about egg masses and how a female gypsy moth resembles a 747, and then it's Omelet McMuffin and Tom Berenger and a chat with Brent Musburger and a movie review and a plug for tomorrow's program about Kent State and an extensive chat between the various hosts about their upcoming trip to the British Isles, all in less than an hour."
I imagine that most readers will recognize in the above passage some parallels with the pace of CNBC's programming -- in fact CNBC moves even faster and is darn proud of it. That's a problem for anybody who wants to learn something from watching television -- the programmers' need to entertain as broad an audience as possible overwhelms the time that can be allocated for any real education. Even when truly useful information comes up, there's no time to consider it, because the next two- or five-minute segment is right around the corner and you're encouraged to start thinking about it immediately (anticipate it while we put this commercial in front of you!), and forget about what you've just watched. Actually thinking about what you just watched would require turning the television off for a while -- perhaps even the whole day.
In the interest of taking a different path, I won't insist this week on a linear description of the CNBC day, and will stop time to consider further what McNamee has to offer. As I research what he has to say about the stock market, what I find useful about him is that he doesn't change his message every five minutes. In 1993, McNamee said there are two huge, new markets on the horizon: interactive media and mobile systems. In 1996, McNamee talked about the same two themes -- interactivity and mobility -- and tossed in a third, connectivity. In 1999, McNamee kept to just those three themes.
It's not as if McNamee's offering an overly narrow focus. There's more in those three themes than any individual could possibly hope to fully learn on his own, but the consistency in focus stands out in sharp relief against the driving mentality of CNBC -- which evaluates the possibility not just of shifting your investing focus quarterly, but daily, hourly, and perhaps even more frequently. And not just moving between different stocks within the same sector, but shifting portions of your savings into entirely new sectors all the time.
On that very day in May 27, 1999, on this very site, Jeff Fischer happened to be offering a slightly different focus, a counterpoint to the general CNBC view, and it echoes McNamee's focus and consistency:
"[I]t is very difficult to learn an industry inside and out. It takes years. Even decades. This is why industry analysts are traditionally well paid, highly valued assets.
"During 10 years of investing, I've come to know only two industries well and two others moderately well. But only two well enough. They are pharmaceuticals and food and beverages. The other sector that I'm most comfortable with is online-based companies. The online industry, for lack of a better description, is so young, however, that everyone is still learning it. And even with century-old industries, there is always something more to know. Meanwhile, regarding industries outside my closer experience, I've really only studied companies extensively, such as Intel.
"The rest of my life could be spent focused on pharmaceuticals and online-based businesses, for example, and these two would represent a complete career that wouldn't allow time to learn other industries. And attempting to learn new industries could prove detrimental, or at least not maximally beneficial, by eating time that could best be spent leveraging existing knowledge in other industries."
The concept that an investor (CNBC throws the term around liberally -- it applies in CNBC language to people who are "afraid to hold any stocks over the weekend") might learn only a couple of industries in a lifetime seems kind of crazy if you watch CNBC.
Returning to McNamee, I keep mulling over one of the things he said in his 1996 Forbes piece:
"Product cycles are the only cycles that matter. Economists talk about interest rates and the economic cycle, but product cycles are what drive the earnings of technology stocks. This applies to all companies, no matter what their position on the market. Product transitions cause uncertainty... and create buying windows in the best-positioned companies. Strong product cycles also provide opportunities for trading profits in less well positioned companies. The key, though, is not to confuse a strong product cycle with good positioning or a product transition with 'the end.'"
In today's news we possibly see McNamee applying his 1996 words with his purchase of Seagate (NYSE: SEG) at a time of product transition. But more interesting to me is the rejection of the common media obsession with interest rates. No hour goes by on CNBC where interest rates are not speculated upon. No day slips by without evaluating the possibility that interest rate increases will destroy stock valuations.
I understand that there's a big difference in equity valuations if interest rates are 12% rather than 5%, but why the obsessive daily worry over the next Federal Reserve Board quarter-point interest rate hike? I feel comfortable with the assumption that on every day CNBC is going to attribute some part of the market's action to "interest rate jitters," either the increasing or decreasing of them. May 27, 1999 is no exception, and neither, for that matter, is March 30, 2000.
I look at the record, though, and I wonder about testing the theory over a longer period than just one day. There have been five interest rate hikes by the Fed since May 27, 1999, and, well, the price of technology (and other) stocks has not been adversely affected in the interim, constant CNBC analyst speculation to the contrary. Is the day too filled with action to ever stop and think about applying the wrong tool over and over and over again?
It's obvious, isn't it, that McNamee is right -- it is the product cycle that matters for these companies, not the interest rate cycle -- but that is a concept that for some reason flies in the face of CNBC's need to have an easy handle to explain each and every day's market action.
I'm just not sure, though, why interest rate speculation needs so much time, when there isn't even enough to finish the McNamee interview.