COMMENTARY ON CHAPTER 18
The thing that hath been, it is that which shall be; and that
which is done is that which shall be done: and there is no new
thing under the sun. Is there any thing whereof it may be said,
See, this is new? it hath been already of old time, which was
before us.
—Ecclesiastes,I: 9–10.Let’s update Graham’s classic write-up of eight pairs of companies,
using the same compare-and-contrast technique that he pioneered in
his lectures at Columbia Business School and the New York Institute
of Finance. Bear in mind that these summaries describe these stocks
only at the times specified. The cheap stocks may later become over-
priced; the expensive stocks may turn cheap. At some point in its life,
almost every stock is a bargain; at another time, it will be expensive.
Although there are good and bad companies, there is no such thing as
a good stock; there are only good stock prices, which come and go.
PAIR 1: CISCO AND SYSCO
On March 27, 2000, Cisco Systems, Inc., became the world’s most
valuable corporation as its stock hit $548 billion in total value. Cisco,
which makes equipment that directs data over the Internet, first sold
its shares to the public only 10 years earlier. Had you bought Cisco’s
stock in the initial offering and kept it, you would have earned a gain
resembling a typographical error made by a madman: 103,697%, or a
217% average annual return. Over its previous four fiscal quarters,
Cisco had generated $14.9 billion in revenues and $2.5 billion in
earnings. The stock was trading at 219 times Cisco’s net income, one
of the highest price/earnings ratios ever accorded to a large company.
Then there was Sysco Corp., which supplies food to institutional
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