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Tech is probably the last sector you would expect to find represented on a list such as this one : after all , isn ’ t the main reason why so many otherwise strong businesses have gone to the wall over the past 18 years because digital firms with lower overheads have gobbled up their sales ? However , just because a business is growing and disrupting others , this does not automatically make it a good investment . As Mould points out , it all comes back to valuation : “ A good company can be a bad investment if you overpay and climb aboard at the wrong time ( usually when the shares have done brilliantly and making money looks easiest ).” For the best examples of how ignoring valuations caused investors to come unstuck , we need to widen our time horizon slightly from 18 years to 22 , so it encompasses the boom and bust of the dotcom bubble . Mould says Sun Microsystems was a classic case of what can go wrong
when you ignore the fundamentals . It was an early leader in computer servers and data storage , then added IT services , software and components to its initial hardware businesses . “ The main problem was its valuation ,” he says . “ Sun ’ s shares peaked at more than $ 250 in 2000 , bottomed at $ 12 in 2002 , and after several false starts shareholders were put out of their misery by a bid of $ 10 a share from Oracle .” Founder Scott McNealy laid bare the error investors made in a subsequent interview : “ At 10x revenue , to give you a 10-year payback , I have to pay you 100 per cent of revenues for 10 straight years as dividends . “ That assumes I have zero cost of goods sold , which is very hard for a computer company . That assumes zero expense , which is really hard with 39,000 employees . That assumes I pay no taxes , which is very hard . And that assumes you pay no taxes on your dividends , which is kind of illegal . And that assumes with zero R & D over the next 10 years , I can maintain current revenue run rates . “ Do you realise how ridiculous those assumptions are ? You don ’ t need any transparency . You don ’ t need any footnotes . What were you thinking ?”
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