People often want to know how I could love a stock one week and then, a few weeks later, just hate it. They act as if stocks, somehow, couldn't possibly change that fast. But the fact is that business is competitive, and when businesses go head to head with each other for business, things can get ugly fast.
Let's take a stock like
. I think this company does a great job helping companies implement Web sites and making them work well. At first they had that business to themselves. But a lot of companies want to get into that space. Some are starting to make inroads.
When inroads get made, deals get cut at a less advantageous basis.
Talent gets drained to others. The clients get smarter. Next thing you know, the profit margins go down or the revenues don't ramp as fast.
And BroadVision gets hit.
My job is to try to be sure that the competitive landscape hasn't so eroded things that it scares analysts into downgrades or number cuts, or worse, the company itself reports a shortfall.
I always understood this process, but not until I sat on the board of
did I see how truthful the pain real competition brings to a sector. Believe me, if there were three or four financial sites, or two or three, and
were one of them, TSCM would be a better stock. That's the same for a BroadVision or a
, two companies that have seen an increase in competition year over year.
If you doubt this thesis, let's think about the great stocks of the last few years.
, for example, while it has competition from
, is basically a monopoly, one that is watched intensely by the
Federal Trade Commission
is not only a monopoly, but a monopoly being pursued aggressively by the government.
has a hammerlock on high-powered servers for the Net.
is still the only highly configured, large-scale player in the Net hosting business.
has defeated just about everybody in networking save
, at one time a strong competitor, is now worth less than nothing if you back out
we monitor the inroads other companies make on our companies because we have to be careful that the dynamic doesn't change overnight. It changed overnight for
, it changed overnight for the Japanese who used to dominate the chip and semi-equipment businesses. It's why we are not long BroadVision or Viant right now. We think they are in too competitive a landscape.
Of course, there are some situations where the competition seems more intense than it is.
, for example, is always being dogged by IBM. But last week we learned IBM's new EMC-killer is late and we had nothing to fear. The stock tacked on a quick 15 points.
The opportunity came as soon as analysts found IBM was late with its product.
When people talk about the "work" they do on tech stocks -- and they are not technicians -- they are simply trying to assess the competitive dynamic. If you don't have time to assess this dynamic you will have to expect that you will be surprised more than I will be. If you can accept that risk, be my guest and try to pick the long-term winners. But recognize that there have been very few companies that, at one time or another, haven't succumbed to some sort of competitive initiative that created some short-term hurt to margins and then, ultimately, to the stocks that represent those companies.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Cisco Systems, Intel, Nortel Networks, Palm, Exodus and Sun Microsystems. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at