If past experience is anything to go by, it may be time to short Cisco Systems.
Being admitted to the Dow Jones Industrial Average is the ultimate mark of corporate respectability – and it has added 5 per cent to Cisco’s shares today – but the history of techs in the Dow has not been a cheerful one.
For many years the brain trust at the DJIA turned a cold shoulder to tech. Only IBM was admitted to the club – and even Big Blue only made it through the door after it had been around for close to 70 years.
Then, at the peak of the tech bubble and with the Nasdaq soaring, the guardians of the DJIA suddenly felt the chill wind of mortality at their backs. At the height of the New Economy, an odour of staleness hung over the decidely old-economy Dow. In short order Hewlett-Packard, Microsoft and Intel were hurried into the elite group.
Anyone who invested on the back of those moves is still regretting the decision. Shares in Microsoft and Intel are down around 55 per cent from the day they were admitted, while the Dow overall is off only 17 per cent.
At least HP, which has been in two years longer, is up 25 per cent over that long period, roughly in line with the market – though it underperformed disastrously for its first decade in the Dow.
And in its own 30-year Dow career, IBM shares are up nearly five-fold. Not bad, until you consider that the Dow is up more than nine-fold in the same period.
Will throwing out banking (Citigroup) and autos (GM) and taking in more tech end up looking like another one of those fashionable decisions that costs investors dear? At least the committee behind the Dow had the sense not to admit Cisco when it enjoyed a brief spell as the world’s most valuable company in 2000. But John Chambers, Cisco’s expansive CEO, must be hoping that admittance to the corporate elite will not mark the end of his company’s early go-go years.
