Hypothetical Stock Index: Lip-Bu Tan vs. EDAC

Just short of 2 years ago, the EDA press corps sat in a room in the Hyatt Regency in Santa Clara and enjoyed a face-to-face with Cadence CEO Lip-Bu Tan. A full report of that conversation is available here, but it is the closing segment of the report that informs this blog:

Finally, the Cadence PR machine closed out the hour by making sure the Press Corps was privy to the human side of CEO Tan. It would appear his wife does not make the tech-product purchasing decisions at home as much as do the two boys. Tan said that his two CMU-educated engineer sons are smart and savvy, and had advised him early on to invest in both Netflix and Tesla. Tan humbly acknowledged that he had, unfortunately, ignored those two pieces of advice and hence had lost out on the opportunity to win big in both movies and EVs.

So, here’s the hypothetical: Given Lip-Bu Tan’s involvement with a $2 billion investment group – efforts interleaved with his responsibilities as Cadence CEO – wouldn’t it have been wise to harvest stock tips from his press meeting back in March 2014 in Santa Clara?

Of course, we would want to diversify the portfolio, so let’s presume we invested $120,000 in mid-2014 and split the amount between the Lip-Bu Tan Index – GoPro, Netlix, Tesla – and the EDAC Index – Synopsys, Cadence, Mentor Graphics, PDF Solutions, ANSYS, and ARM.

How would we be doing today? The answer is interesting.

The $60,000 we invested in the Lip-Bu Tan Index – $20,000 each in GoPro, Netflix, and Tesla – would now be worth $12,980 + $34,312 + $16,868 = $64,160.

The Lip-Bu Tan Index would have yielded an approximate plus 7% return from mid-2014 through today. [Note: that’s not an annual yield, but a cumulative one.]

The $60,000 we invested in the EDAC Index – $10,000 each in Synopsys, Cadence, Mentor Graphics, PDF Solutions, ANSYS, and ARM – would now be worth $10,590 + $10,950 + $7,800 + $4,550 + $11,440 + $9,090 = $54,420.

The EDAC Index would have yielded approximately a minus 9.3% return from mid-2014 through today. [Again: not an annual yield, but a cumulative one.]

And what can we conclude from these results?

1) Always diversify, because the future is an unknown. Today’s big flier may be tomorrow’s bust.

2) New companies with ‘buzz’ such as GoPro, or even established companies with ‘buzz’ such as ARM, can surprise us with disappointing results.

3) Non-EDA industries continue to outperform EDA with frustrating regularity.

4) The EDA industry may continue to employ the smartest people in the world, but not necessarily the richest.

5) That’s amusing because Synopsys, Cadence, Mentor Graphics, PDF Solutions, ANSYS, and ARM can live without GoPro, Netflix, or Tesla. But GoPro, Netflix and Tesla absolutely cannot live without Synopsys, Cadence, Mentor Graphics, PDF Solutions, ANSYS, and ARM.

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The Lip-Bu Tan Index

* GoPro
26 June 2014 … $31.34
20 January 2016 … $11.00
Change … minus 65%

* Netflix
26 June 2014 … $62.80
20 January 2016 … $107.74
Change … plus 71.6%

* Tesla
26 June 2014 … $235.60
20 January 2016 … $198.70
Change … minus 15.7%

***************
The EDAC Index …

* SNPS
26 June 2014 … $38.66
20 January 2016 … $40.94
Change … plus 5.9%

* CDNS
26 June 2014 … $17.39
20 January 2016 … $19.04
Change … plus 9.5%

* Mentor Graphics
26 June 2014 … $21.52
20 January 2016 … $16.78
Change … minus 22%

* PDF Solutions
26 June 2014 … $20.91
20 January 2016 … $9.52
Change … minus 54.5%

* ANSYS
26 June 2014 … $74.05
20 January 2016 … $84.71
Change … plus 14.4%

* ARM
26 June 2014 … $44.83
20 January 2016 … $40.74
Change … minus 9.1%

***************

Tags: Ansys, ARM, Cadence, GoPro, Lip-bu Tan, Mentor Graphics, Netflix, PDF Solutions, Synopsys, Tesla

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