A good reminder of the risks of being involved in speculative manias from the CEO of Sun Microsystems, a company whose stock price went 100x between 1994 and 2000.
Yes, 100x in 6 years.
A short thread on what its CEO Scott McNealy had to say when the bubble burst.
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Yes, 100x in 6 years.
A short thread on what its CEO Scott McNealy had to say when the bubble burst.
1/6
By 2002, the dot-com mania had largely deflated and with it many trillions in ''wealth'' were wiped out.
At an investor gathering in April that year, Scott McNealy gave a glorious short speech that includes his most famous sentence.
''What were you thinking?!?!''
2/6
At an investor gathering in April that year, Scott McNealy gave a glorious short speech that includes his most famous sentence.
''What were you thinking?!?!''
2/6
“At 10x revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends...That assumes I have 0 costs of goods sold, which is very hard for a computer company. That assumes 0 expenses, which is really hard with 39000 employees''
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3/6
''That assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with 0 R&D for the next 10 years, I can maintain the current run rate...Do you realize how ridiculous those basic assumptions are?''
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4/6
''You don’t need any transparency. You don’t need any footnotes.
What were you thinking?!?!”
Powerful short speech, isn't it?
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What were you thinking?!?!”
Powerful short speech, isn't it?
5/6
The major pitfall in this rationale was assuming no earnings growth - Apple is trading at 8x price to sales, but its revenues can easily grow 20%+ in a single year.
Nevertheless, Sun Microsystem CEO's speech serves as a timely reminder: be careful with ''regime changes''.
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Nevertheless, Sun Microsystem CEO's speech serves as a timely reminder: be careful with ''regime changes''.
6/6
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