Plenty of Room for the Major Indexes to Go Higher

In homage to Herman's Hermits, "2nd verse, same as the first..." (this was the same case I made in March 2014)

With large cap tech trading at middling multiples (15x) there is still room for the major large cap indices to go higher.

If large cap tech were to play catch-up (moving from 15x to 18x) it would also likely underpin the rest of the market (maybe even add a little to their valuations) and could see the general market indexes rise another 15%-30%.

Last year at this time we saw the high beta momentum plays get hung drawn and quartered even as large cap tech underpinned the "broader" strength in the market. I say "broader" because breadth actually deteriorated significantly (small-mid caps were hammered) but this was not so evident from the large cap major indices.

Patience Is A Virtue - Sitting Tight

I have essentially been sitting tight on my positions (with the exception of being stopped out of my high momo shorts earlier this year) for the better part of a year. If I had held my high momo shorts I would have made a killing (30%-40% returns). I don't feel bad about that because you have to enact a limit loss discipline in the short realm. Fortunately, I didn't panic when the market took its little dive in February. The main reason was that I didn't think my holdings warranted being sold. I put a long mega-cap tech position on last year based on what I considered to be a significant undervaluation for the space (relative to the high growth momos and the rest of the market). That thesis has played out over the period and I expect it to continue to play out (which is likely to provide an upward bias to the indices). In fact, many of those names (INTC, QCOM, MSFT, ORCL, GOOG, AAPL, EMC, CSCO) still look very attractive on a valuation & yield basis relative to alternative investments. I have price targets set for each name and will begin reducing my exposure as those targets get hit. INTC = $36-$38, QCOM = $90-$100, MSFT = $45-$48, ORCL = $48-$52, GOOG = $620-$650, AAPL = $120-$130, EMC = $34-$36, CSCO = $34-$36. I also have a kind of net-net barbell on with KLIC, QLGC, GENC, TST & WSTL. I'm eyeing RELL but expect to pick it up when the market pulls back. I have a stodgy contrarian core with BP, RDSA, CHL, SYT, BEN and JPM, and two contrarian plays in BBRY and SGI and a speculator in ARO.

I think patience is the most important part of investing. At least it is for me. I feel that it is my weakness - my achilles heel. I cannot count the number of times I was in the right position, but failed to hold, either through lack of conviction or pulling the trigger too quick or reacting to macro events. With the market continuing to march higher, I am feeling pressure to take profits and put some money in the bank, even as my thesis hasn't played out. And when those names reach their target levels there is a good chance I'll re-evaluate and decide they are still the best option from a value, yield and alternative valuation perspective. In which case, I may trade around those positions. Right now, I am hitting my one year holding period and so the temptation to lock in long term gains is definitely there.

Megacaps - Disruption, by-pass and obsolescence

I love the megacap techs. I have been touting them and telling folks that is the one area I have any degree of confidence that you will get good returns.

CSCO, MSFT, ORCL, SAP, INTC.

I have not been ignorant of the potential for technological disruption or bypass. Rather my premise has been that these firms have a certain inertia, built-in momentum from existing client-bases, a balance sheet to take on any challenges/ers, and monopolistic margins to show their superiority.

That was then, this is now. Lest I forget the lessons of Kodak, Dell, Nokia, and Blackberry. I have made those mistakes before.

The treading of water by the megacaps in the market points to a tremendous skepticism and concern surrounding the uncertainty of their being able to make it to the other side.

The market is voting right now and saying these names are dead. They are dead because they can't make the hard decision to cannibalize a working monopoly in order to reinvent themselves. This is natural for any monopoly with an embedded vested bureaucracy. The market is saying the young upstarts are going to dominate: LNKD, N, CRM, WDAY. I am highly skeptical. The market appears to have already crowned these whipper snappers with valuations implying nothing but blue skies ahead. The old pseudo-monopolies may be monoliths and have trouble making the hard strategic decision to "blow a couple of years" in transition, but they also have a wager either side and are going to do their best to have it both ways.

Of the megas, Intel seems to be furtherest ahead in making the transition. Intel is taking it on the chin at the moment and has decided to reinvent itself again. Having missed the mobile/tablet revolution they are leveraging their superior resources to go after the new markets. If I were to hazard a guess, it looks to me as though they have made the hard decisions and are pretty well positioned to be competitive in the future.

Perhaps the best strategy is to sit this one out and see what happens. At the

The risk for those who don't make the transition is declining revenues and declining margins. With so much cash on the balance sheet and a vestige cash cow business they can go on for 10 years paying out dividends before they are put out of their misery.