Dell falls off quite a bit

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It can happen to any company. A former high-flyer starts stumbling. This is what seems to be happening to Dell Lately as the warn again on earnings. The global market is highly competitive, and no company can take market share for granted. As investors, a tale like Dell cautions us against having a strictly “Buy and Hold” philosophy, because so many factors can change, that no company is guaranteed an advantage forever.

Dell has been struggling with slowing growth as competition has increased from rivals Hewlett-Packard Co., whose shares shed 2.3 percent in after hours trade, and Asian competitors such as Lenovo Group Ltd. and Acer Computer International.

For a long while, Dell defeated competitors by keeping their operating expenses low and marketing directly. Others have followed suit and imitated, eroding their unique advantage. In fact, Lenovo and Acer can build units cheaper, and have vastly improved their marketing ability. This serves as a reminder of a how quickly things can change.

Yesterday’s stock market leaders rarely lead in new rallies. In fact, take a look at almost any of the darlings of the tech boom in the late 1990s, and you’ll see they’re shadows of their former selves, both operationally, and from a stock standpoint. For this reason, we should never become so enamored of a stock or company, that we fail to see how drastically changing conditions could effect them. Dell is in a long way from being in real trouble, and they’re still an excellent company, but there’s no idea on just how quickly they can grow again. And much of the high stock price they earned in the 1990s was based on the inflated and unrealistic expectations of growth people had for Dell. Now we can see that some of the dreams are deflated. For this reason, prune your portfolio of any high flyers who have severely cooled off because of changes in their operating environment.

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