Cisco Systems
Post #500 Bonanza

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By RadRx
January 9, 2002

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I figure every 500 posts or so, one deserves to have the freedom to wax philosophical. Here is my POST #500.

Over the last 3 years at Fool, the market has thrown us some interesting curve balls. We saw the "irrational exuberance", preceding a 75% drop in the NASDAQ� characterized by 90% plus drops in many widely held, well known stocks. The market uncertainty was "topped off" by 9-11, an event I have trouble characterizing with simple words. The last 3 months, the markets reflected the resilience of our system, rebounding to finish "mixed" for 2001.

Uncertainty continues to lurk on the horizon. Some predict a long lasting recession, as the impact of layoffs on consumer spending becomes more noticable, as the real estate markets become sluggish, and as we feel the impact of "disappearing money" from companies which continue to go bankrupt. Others suggest that companies are taking necessary steps to cut expenses and become more profitable. Inventories are coming back into line, the market has readjusted without widespread "damage" to the overall economy, the political structure remains stable, this is simply a normal and expected course of events� and thus the economy is preparing to resume growth. In either case, I continue to believe in the power of investing in virtually all markets.

The following brainstorms/suggestions are the product of experience during the first 499 posts.

1) Have a strategy, and follow it. Fads come and go. Markets cycle. If you don't have a strategy, you will too easily get caught behind the trends.

2) Employ due diligence. Don't simply believe what someone else says. Your own research should provide the backbone for any investment decision.

3) If you like a company you own, but after an impressive stock rise your analysis suggests the stock is overpriced, it probably is. Sell. If you don't want to sell all, sell some.

4) Don't follow the crowd. When everyone seems to think the market is a no-lose proposition, beware. When the doom and gloom bandwagon is hot, look for opportunities.

5) Be suspicious. If you suspect the books are being doctored, you are probably right. Few things smash a stock price as quickly as new information showing the company has not been honest with stockholders.

6) Speculative stocks are speculative, no matter how good the story. It is ok to invest in speculative stocks, particularly when spreading risk with diversification. But understand the risks.

7) Be cautious of major acquisitions. Many times I have observed companies falter after a major acquisition. Company "cultures" built up over years do not always mesh well. Often acquisitions are accomplished by paying a "premium". Anticipated savings are not consistently realized. The acquisition process can distract top management for several critical quarters (or even years) away from the demands of their core business. The earnings reports can be difficult or impossible for the investor to interpret for several quarters. Acquisitions are not necessarily bad, but don't assume it is a good thing either.

8) Companies do go bankrupt. Yes it does happen. Don't neglect to consider this possibility, especially for highly leveraged companies, companies without earnings or little revenue, companies without positive cash flow, and companies undertaking major new investments.

9) Keep track of your performance, but don't stress over it.

10) Don't expect to recover your stock losses with a lawsuit against the company. At best, you will gain pennies for every dollar lost. More so, the one hurt most is the poor guy who just paid you good money for the stock you just sold (unless of course you didn't sell, in which case that person is you).

11) If it sounds to good to be true, it probably is. In the stock market, there is no such thing as "a sure thing."

12) Seek out the contrary opinion. Always try to make your analysis objective. Too often we have a tendency to let our pride or enthusiasm prevent us from considering a contrary opinion.

13) Remember, it is only money! Put into proper perspective, your stock performance is far down the list after your health, your family, your friends, your faith, and your integrity. If your stocks are having a bad day, go kiss your spouse, play with your kids, and thank God for being alive. If your still feeling distracted by the performance of your stocks, try visiting a pediatric cancer ward. It shouldn't take too long to realize, "it's only money."

14) Enjoy the trip. If we don't enjoy investing, is it worth the time and effort?


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