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Whoops apocalypse

11/10/2011

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

As the technology boom of the late 1990s came to the boil, Cisco, Dell, Intel and Microsoft emerged as the four darlings of the market and by 1999 had even earned their own collective label - the four horsemen. To that point they had all handsomely rewarded investors but, between 1999 and 2006, each lived up to the more apocalyptic aspect of their nickname and at least halved in value.

By 2007, again after performing well for investors, it was the turn of Amazon, Apple, Google and Blackberry's creator research in motion to be hailed as the future of technology and indeed some market commentators - not always the most imaginative of creatures - went so far as to claim "the four horsemen rode again". Unfortunately, history did not just repeat itself with the nickname and, since 2007; Google and research in motion have both suffered significant share price falls.

This is not to suggest Amazon and Apple cannot kick on and deliver for investors but, as with the original four horsemen, the extremely high valuations on which their successors were trading by 2007 made it extremely unlikely investors would make any money over the medium term. According to empirical research partners, from these elevated valuation levels the chances of being a profitable investment are one in three, which given the performance of Google and research in motion - not to mention Cisco, Dell, Intel and Microsoft - looks on the generous side.

Bearing in mind their valuations in 1999, the original four horsemen was a pretty terrible concept but one that pales beside how some people were willing to accept the idea that "the four horsemen rode again". That people would jump on a theme the previous incarnation of which had lost investors half their money is yet further proof - if it is needed - that stockmarket lessons about the importance of valuation are quickly forgotten.

 

Author

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials.  In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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