Posts from 2008

We had a bunch of people over yesterday for thanksgiving and at one point my daughter and a friend of ours started talking about their Blackberry Bold phones. They like them but sort of miss their older blackberries. My friend Phil misses the raised buttons of his old Curve. My daughter misses the feel of her even older 8700.

I’ve been using one blackberry or another since the original pager style Blackberry that I got in 1997. I’ve made a few detours along the way. I’ve tried the iPhone twice, the Sidekick (which I really liked), a windows mobile phone (which I really hated), and the Android-based G1. But I keep coming back to Blackberry, largely for the keyboard which I am addicted to.

I didn’t even think about getting a Blackberry Storm. David Pogue’s comment about the Storm is exactly how I feel about it.

Hello? Isn’t the thumb keyboard the defining feature of a BlackBerry? A BlackBerry without a keyboard is like an iPod without a scroll wheel. A Prius with terrible mileage. Cracker Jack without a prize inside.

If I wanted a touch screen phone, I’d get an iPhone. I certainly don’t want a touch screen Blackberry.

My Blackberry Curve recently died on me and instead of getting a Bold, I got another Curve. I think the Blackberry Curve is the perfect phone for me. Other than the lack of a decent twitter client for Blackberry, it does everything I need.

So when I saw the news today that there’s going to be a new Curve coming soon, called the Blackberry 8900 (fka the Javelin), I got very excited.

It’s basically my beloved Curve with a faster processor, a better screen, and a better camera. I’m getting one of these as soon as they are available on T-Mobile. Until then, my curve will do me fine.

One of the things I’ve been saying recently on this blog is that the Dow is full of tired companies and tired stocks. I think the Nasdaq is much more representative of the current american economy than the Dow. And when I came across this chart on Andrew Finkle’s blog this morning it got me thinking.

This shows the Dow from 1924 to 1939 and the Nasdaq from 1995 to September 2008 (two months ago). It’s too bad that the red line doesn’t go all the way to this week because it would be even more striking. That’s because the Nasdaq traded all the way down to 1300 as of last friday and is now at 1500. It’s not exactly tracing the 1929-1939 Dow, but it sure is damn close.

So the obvious question is where did the Dow go from the early 1938 bottom?

Here’s a chart that I found on the woodshedder blog:

From 1938 through the end of the war in 1945, the Dow was locked in a narrow trading range between 100 and 150 and it retested the 1938 lows in early 1942.

If the Nasdaq is the new Dow, and it sure seems like it is on many levels, then this would mean the Nasdaq will trade in the range of 1300 to 2000 for the next seven years and will retest last friday’s lows at least once more before starting a slow but steady climb sometime around 2012.

It also means that the Nasdaq isn’t going much lower from here.

Now I want to say that while history does repeat itself, it’s dangerous to take too much from exercises like this. They are fun and amazing at some level. But I wouldn’t bet the farm based on an analysis like this.

I much prefer to think about fundamentals. The best companies in the Nasdaq, like GOOG, AAPL, AMZN, CRM, ABDE, and others reached levels last week that strike me as big time bargains.

GOOG traded as low as $250/share on Monday. That’s a market cap of $78bn and an enterprise value of $64bn. That’s for a company that had operating cash flow last quarter of $2bn and certainly has the ability to earn $8bn per year of cash flow even if revenues flatten out or decline slightly. When one of the top companies in the world trades at 7.5x cash flows, that’s a signal that it’s time to start buying. Think of it this way. If you had the money and you could buy all of Google (I don’t and you can’t), you could lay out the $64bn and wait 7.5 years to get your money back and then you’d own the whole company forever after that. That’s a steal in my book.

So my gut tells me we may have seen the worst of the selling in the Nasdaq for now. But it’s also instructive to think about the kind of patience you’ll need to have with these stocks if you buy them in here. If the crystal ball of the Dow from 1929-1945 is accurate, then at best these stocks will go up around 50% in the next seven years. That’s an annual return of around 6% for the next seven years. If you are good at trading (I’m not) then of course you can do way better than that.

And of course, as I pointed out in this blog post from last week, an index is not representative of what can happen with individual stocks in it. I don’t know how invidual Dow stocks did from 1938 to 1945, but I am sure there were some that did way better than up 50%. My bet is companies like Google, Apple, and Amazon will outperform the Nasdaq as a whole from here on out. They are leaders in their markets, have dominant franchises, have strong balance sheets, and positive cash flow that I believe will survive the downturn intact. That’s why I’ve been buying them and have stepped up my purchases in the past couple weeks.

I’m battered like everyone else and have not been spared the losses that most have taken for the past year. But I am optimistic and thinking about how to make money going forward. Because as my friend Fred said to a large gathering a few weeks ago, you can’t leave cash under a mattress. You have to invest capital to make money. And that’s what I am doing with my stock market investments, my real estate and hedge fund investments, and most importantly, with our venture capital investments.

I’ve spent a lot of time reading about what went wrong in the financial markets in the past year. A lot of the best stuff has come in the form of letters and presentations from hedge fund managers who have been at the front lines in this crisis. Most of that stuff is highly confidential and not bloggable. But there is one chart that I keep thinking about that I wanted to share with you.

I saw this chart in a presentation by a leading hedge fund manager. This is a Bloomberg chart that anyone with access to a Bloomberg terminal can recreate and I apologize for the grainy quality and somewhat out of date nature of this.

This is a chart that goes back to January 1994 and charts the S&P vs the rest of the world (minus Japan). Apparently taking out Japan doesn’t change this chart much but it’s cleaner without it.

This shows that for seven years from 1994 to 9/11, the US outperformed the rest of the world by a lot. And from 9/11 to the end of last year, the rest of the world outperformed the US by the exact same amount. It was one big round trip. And that round trip ended in a mess.

I am not going to try to explain why this round trip ended in a global financial meltdown, but it mostly has to do with massive leverage and liquidity and we finally hit the breaking point.

You’ll notice that in the past several months, the US has started to outperform again. This is probably due to positions around the world being unwound and dollars coming home (or something like that). I don’t know if you can make too much of the recent time period.

But the big question is where do we go from here? As we start think about how to position ourselves collectively for the next move up (whenever that comes and it could be a long while), I think this chart is worth paying attention to.

And if you haven’t read it yet, I suggest everyone read Fareed Zakaria’s The Post-American World. It gives an interesting context to this whole issue. Here’s my blog post that I wrote this summer after I finished it.

Yesterday I saw (and twittered) a comScore report on online spending this holiday season. So far this holiday season (comScore calls Nov & Dec the holiday shopping season), $8.2bn has been spent online which is down 4% versus the same time period last year. The report goes on to say:

comScore’s forecast is that holiday online retail spending for the November – December
period will be flat versus year ago, significantly lower than last year’s
growth rate of 19 percent and below the retail e-commerce growth rate of 9
percent that has been observed for 2008 year-to-date.

That got me thinking. Flat year over year growth is pretty bad news for an industry that has been growing at 20% per year. But at least it’s not negative. Flat is the new up 20% I guess.

But on a more serious note, I’ve been meaning to post some data that I am privy to by virtue of our role as board members on a bunch of privately held companies. Not all of our companies are generating revenue but quite a few are at this point and the numbers we are seeing out of them are actually pretty promising.

I am not going to cite any confidential information and I am not going to identify any companies by name in this post. But I’ll give you all some anecdotal evidence that things may not be as bad as everyone thinks.

We have two companies in our portfolio that are setting record revenues every day or two. We have a company that is having it’s best booking quarter ever. We have an advertising based company that is having its best ad sales season ever. We are also seeing search advertising holding up remarkably well in the face of this downturn.

The fact is that we are not really seeing any signs of major meltdown in any of our portfolio companies yet. Its important to recognize we are only a month or two into this mess and that we won’t see the real impact of the downturn until we hit 2009 spending budgets.

It’s also important to note that these are all small companies by any measure and they are selling new things in new ways. They are probably less economically sensitive than big established companies. It’s hard to imagine companies like Cisco and IBM being as immune to the downturn as small startups.

But amidst all the doom and gloom, I want to be sure to point out that disaster hasn’t struck everywhere just yet. If comScore is right that e-commerce this holiday season will be flat, that’s not a total disaster either. With the best tech/online/e-commerce stocks trading at values that expect declining profits and cash flow year over year, I think it’s worth noting that this could turn out differently than conventional wisdom. In fact, it always does.

I have been slammed with people asking me for invites to Boxee. I’ve tried to comply with every request so far and have given out easily 250 invites in the past week.

Now the folks at Boxee have done something to help me out. There’s a page at Boxee for friends of this blog. Please go here and enter your email address and I promise you’ll get an invite within 24 hours.

Soren and Howard have been busy building out stocktwits and today they sent me a link to a firefox extension that makes twitter a bit smarter. When you add the stocktwits extension to firefox, a stock tweet will look like this:

Those tickers are now hotlinked to stocktwits. This gets me excited. Because someone could do so much more with this idea. We have a few companies that are trying to extract meaning out of content on the web. Adaptive Blue recognizes pages about things (books, music, film, stocks, wine, people, etc). Outside.in recognizes posts and articles about places (neighborhoods, schools, parks, etc). And Zemanta recognizes concepts in blog posts and recommends content to add to your post.

What if they and others put out similar extensions? Then twitter would get smarter. The links that people send around on twitter are one of the best things about the service. It’s like a live collaborative RSS reader. But if every tweet had links in that were added semantically, then we’d really have something.

Those of you who are using Boxee on Apple TV know that the new AppleTV firmware (v2.3) broke Boxee. That’s been fixed and the details on are on the Boxee blog.

Also, I’ve been inundated with requests for Boxee invites and I’ve been sending them as fast as I can. We are going to set up a special page on Boxee to get invites from me and that should make things easier. I’ll post the details as soon as we have that invite page working.

Just over a year ago, I wrote a post explaining that Techmeme was moving from highlighting the work of individual tech bloggers to the work of professionally produced tech blogs. In that post, I bemoaned the fact that I had been knocked off of the techmeme leaderboard along with most other individual tech bloggers.

Then something changed. Maybe it was me writing more for Techmeme (by reading the top stories and then blogging about them and linking to them). Or maybe Gabe changed the algorithm. But in any case, by this summer, the AVC blog had risen to #20 on the Techmeme leaderboard.

I don’t actually care about being on the leaderboard itself but I care a lot about being part of the conversation at Techmeme. Over 300,000 monthly readers visit techmeme to participate in the conversation according to Compete:

These are 300,000 of the kinds of people I’d like to be in the conversation with every day. So I want the posts I write here at AVC to show up on Techmeme. It’s important to me.

But in the past couple months, something interesting has happened. As I’ve started writing more about politics and stocks and the financial markets, my readership has started growing again. For the past three or four years, this blog has been stuck at about 150,000 monthly readers (blog and feed). Last month, it was closer to 200,000. And this month, it appears to be headed even higher.

Yet, as the audience for this blog grows, the amount of traffic coming from Techmeme has declined. Here is the google analytics traffic sources log from August, which shows how important techmeme was this summer:

And here is the data for the past 30 days.

The biggest drivers are direct and google, but within the services that cater specifically to the tech audience I want to reach and be part of (techmeme, hacker news, twitter, friendfeed), there has been a noticeable move up by hacker news (news.ycombinator.com) and twitter and a noticeable move down by techmeme.

The dropoff from techmeme makes sense because posts I’ve written on this blog have been there a lot less recently. But I think the move up on hacker news and twitter are also worth noting. If the same people who were finding my posts on techmeme can now find them on twitter or hacker news, then I can still participate in the conversation with them.

I think what’s happening is techmeme is catering more and more to the professionally produced tech blogs. Whatever Gabe’s algorithm does, it seems to point mostly to TechCrunch, VentureBeat, NY Times, Wall Street Journal, Gizmodo and that ilk. Nothing wrong with that. But as of this morning, the only individual bloggers I see on the leaderboard are Nick Carr, Mark Cuban, and my good friend Tom Evslin.

Hacker News is peer produced, like Digg. But the community there is very startup ecosystem focused and it’s a great source of readership for this blog. There is no leaderboard for Hacker News (that I know of) but I get the sense that the links on hacker news are more varied and less predictable than Techmeme.

And Twitter. Well what can I say about Twitter? Tim O’Reilly recently tweeted that:

Twitter is my main source of news. Never use RSS reader any more
            
         

I’ve never used an RSS reader. I’ve used services like Techmeme and Hacker News to surface interesting posts for me. I still do. I visit each of them about five or six times a day. They are my RSS readers for tech news. Twitter does the same thing for me, but I also get stock news, political news, family/friend news, and some humor too. It’s like reading a custom built newspaper.

But enough about Twitter. This post is about Techmeme. I’ve been obsessed with Techmeme for the past couple years. And I think that obsession is coming to an end. I still plan to visit it as much every day. But I think I’ll stop jonesing for my posts to get picked up there. The conversation is happening all over the place anyway and I don’t think any one service will ever be able to host it all anyway.

One of the best posts I read this week was from Fortune’s Andy Serwer. In it, he noted:

At the end of 1999 the Dow was around 11,400. Today the Dow is at
8,400, which means the index has fallen some 26%, a decline of almost
3% per year. With just one year left in this decade – even if 2009 is a
humdinger – it is increasingly likely that first 10 years of this
century will be one big washout for investors. A lost decade.

I’ve been thinking about that since I read it midweek. A lost decade in which if you owned the Dow, you’d have lost money on stocks.

But there’s a problem with indexes and that is the average doesn’t really tell you that much. So I want to look at the Dow stocks and figure out which ones were big winners this decade and which ones were big losers.

Here’s a list of the 30 current Dow stocks. Let’s take a look at six of them;

3M
Citigroup
GM
Intel
J&J
United Technologies

3M is up a bit in the "lost decade" about $10 or a 20% gain in almost 9 years. Nothing to get too excited about but not a loser.

As most everyone knows, Citigroup is fighting for its life right now and is down at least 90% since the start of the "lost decade". But for most of this decade, it was flat. The drop has all come in the past year.

GM’s chart looks quite a bit like Citigroups and it should. It is also fighting for its survival. One difference though is that GM has been in slow decline all decade and then dropped off a cliff this year.

Intel’s chart is interesting. It’s a loser this decade as well, down almost 80% in the decade. But all of its decline happened in the first three years of the decade reflecting the technology meltdown in the first part of this decade. Since then, it’s bounced around a lot but isn’t down much more.

Finally a real winner. Johnson and Johnson has made a slow and steady climb all decade, and is up (even with the recent market meltdown) by about 33% over the past nine years. Even so, that’s less than 4% per year.

I’m glad to see we found a good chart before this exercise was over. United Technologies is down 40% in the past year but is up around 60% for the decade so far.

So what this shows is the Dow is a mixed bag. A few disasters (GM, Citigroup, Intel), a bunch of so so stocks (like 3M) and a some winners (like J&J and United Technologies).

I looked at a few other stocks as I was doing those charts and there’s a lot of yuck in the Dow. IBM, HP, and Wal-Mart are all down for the decade. It’s not really clear to me how the Dow has enough positive energy to withstand the blowups in AIG, Citigroup, and GM. As a group, the Dow looks pretty tired to me.

The point I was trying to make with this post is that the decade we are in has not been lost for everyone. We may have to go outside the Dow to find the best examples. Lets look at two of my favorite stocks; Apple and Google.

Apple has taken two big hits this decade (the tech meltdown in the early part and the recent market bust) and is still up 3.5x in nine years. The run Apple has had from early 2003 to late 2007 is one of the most impressive runs I’ve seen.

Apple’s run mirrors Google’s run. If you had only owned two stocks this decade, Apple and Google, you’d be a happy investor. Google stock has completely blown up in the past year (down 60%) but it is still up 2.5x from its IPO in mid 2004.

When I think about what’s really going on in this "lost decade" it occurs to me that we are finally witnessing the impact of the end of the industrial era and the emergence of the information era. That’s not to say every "information stock" has done well. Intel and Microsoft have been a disaster. IBM and HP are down for the decade to date. But we also have to realize that the late 90s drove all information stocks up to crazy levels in anticipation of exactly this shift taking place. The market got it right, but as usual it overshot.

If we go back to Andy’s post which got this whole exercise started, he made the following point about what happens after the "lost decade":

at some point stock price returns will revert back up to the mean. In
fact, to revert to the mean, stocks will at some point have to exceed
the mean, in other words go up more than 8%. I know it could be years
off, but you see my logic. It’s just math.

And if that does happen, I don’t think it will happen in tired stocks like many in the Dow. It will be stocks like Apple, Google, and companies we don’t even know about yet that will lead us back out of this downturn. And I bet there will be a bunch of companies from what we used to call the "emerging markets" that will lead us out of this mess. I think I’ll call them the "emerged markets" from now on.

I am an optimist, I guess you have to be one to be in my line of work. Even in the midst of the worst downturn in my lifetime, I am thinking about what’s next, how we are going to make money in the next run. Because as Andy points out, there will be one and we should be using this downturn to position ourselves well for when it comes.