The First Bubble: Tulip Mania
The Best-Performing Semiconductor Stocks
Stock Market Analysis Video
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The sequel to Oliver Stone’s 1987 classic “Wall Street,” a movie that I’ve been looking forward to seeing for some time, was released last week. The original starred Michael Douglas as the ruthless Gordon Gekko (whose character popularized the motto “Greed is Good”) and Charlie Sheen as Bud Fox, a young, too-eager stockbroker caught up in trying to get to the top at any price.
The sequel tacks a question mark on the end of Gekko’s famous motto, appropriate since we watched the financial system and stock market essentially melt down in the 2008-2009 bear market and recession. The movie deals largely with the financial crisis, but there’s some romance, father-daughter strife and gorgeous shots of New York City thrown in as well. (There are also some great self-referential scenes for those original “Wall Street” movie buffs.)
In one scene of the sequel, Gekko discusses what has been termed tulip mania and is seen by many as the first real bubble. The peak of tulip mania occurred in the 1630s, long before the dotcom boom and bust and before people thought houses would indefinitely appreciate in value, but it can still teach us lessons.
Bubbles occur when large groups of people (like investors) behave irrationally. They almost always spell trouble.
The tulip bubble was a classic. Prices for bulbs reached ridiculously high levels—at the peak, some single bulbs sold for many times the yearly wages of skilled workers—and as in all bubbles, the prices eventually collapsed.
This has happened again and again since, because each time people believe things will be different. We all know what happened when housing prices became inflated and people were leveraging toxic debt: Banks failed, the stock market plummeted and many people lost their jobs.
My advice to you is to stay away from overinflated sectors and industries when selecting investments. Beware the mob mentality that comes with bubbles. It’s very difficult to go against the crowd, but that contrarian thinking can save you from losing your shirt the next time this happens. And there will be a next time because many people still believe that “Greed is Good,” no question mark.
This week, Cabot Small-Cap Confidential Editor Thomas Garrity alerted to me a list of the 10 best-performing semiconductor stocks year-to-date.
Tom was so excited about the list because it includes three of his newsletter’s picks: EZ-Chip (EZCH), up 105% this year; QuickLogic (QUIK), up 103%; and Ramtron (RMTR), up 97%. These gains are nothing to sneeze at. And they demonstrate the power of small-cap stocks.
You’ve probably never heard of any of these stocks, unless you’re a Cabot Small-Cap Confidential subscriber, but these gains show they are worth a look. Keep in mind that Tom recommends stocks for the long term.
All three of these companies are part of the fabless semiconductor industry. This highly profitable sector includes companies that research and design semiconductors but license out the actual manufacturing to others.
I’ll start with EZ-Chip, Cabot Small-Cap Confidential’s first recommendation three years ago. The company (formerly LanOptics) was started in 1989 and is headquartered in Israel. EZ-Chip is in the business of developing Ethernet network processors for networking equipment. As consumers use more and more data from the Internet, EZ-Chip works to find ways to deliver it better and faster. EZ-Chip released record second quarter results in July, with revenues increasing 123% over last year to nearly $15 million.
Cabot Small-Cap Confidential first recommended QuickLogic, founded in 1988 and headquartered in California, in late 2009. The company is the leading provider of customizable semiconductor platforms for mobile devices. And as more people buy smart phones, QuickLogic is sure to benefit. In August, the company announced fiscal results of the second quarter, with revenues up 123% year-over-year to $6.5 million.
Ramtron, recommended in early 2008, was founded in 1984 and is headquartered in Colorado. Ramtron combines the best attributes of volatile and non-volatile memory to create superior semiconductor memory called Ferroelectric Random Access Memory, or F-RAM. And the company has strong patents to protect its products. Ramtron announced second quarter revenue that was up 66% over last year to $18.3 million.
Now remember that small-cap stocks can be volatile, so don’t just go out and buy these. Do some more research, or better yet, subscribe to Cabot Small-Cap Confidential, where you’ll find complete write-ups on all of these stocks (and more).
In honor of this great performance, we’re extending our Limited Time Anniversary Price Rollback for Cabot Small-Cap Confidential until October 4. But hurry, this offer will end on Monday! Click here for details.
In this week’s Stock Market Analysis Video, Cabot Top Ten Weekly Editor Michael Cintolo says that the stock market had a great September, but it has experienced some distribution recently. Mike says this is normal after such a big run. Stocks discussed: Apple (AAPL) Baidu (BIDU), Netflix (NFLX), Amazon.com (AMZN), NetApp (NTAP), Riverbed (RVBD) and Under Armour (UA).
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In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, I have links below to each issue.
On Monday, Timothy Lutts discussed why you should look to less popular stocks trading at a better value than over-hyped and over-priced stocks for investment opportunities. Tim also discussed two reasons behind the bull market and why he still thinks JinkoSolar is strong. Featured stocks: MasterCard (MA), Visa (V) and JinkoSolar (JKS).
On Thursday, Michael Cintolo discussed the main causes of investment stress and how you can work to overcome them. Mike also wrote about the stock market’s September run and the possibility of buying the best stocks on any coming weakness. Mike discussed the King of Storage, NetApp. Featured stock: NetApp (NTAP).
Until next time,
Editor of Cabot Wealth Advisory