Technology Investing for Profit
by Allen Keyte, editor
World Affairs Review
With
all the hype continued to be pumped out by brokers and gurus, and in the
face of highly volatile Internet stocks, I thought it would be a good idea
to let you have a few thoughts.
How To Succeed With Technology Stocks
Technology
is little different than the discipline that you would apply to any other
sector. The problem is that when a sector becomes very `hot' then emotion
often take the place of reality.
So,
many of the skills of investing in this area are the same as those required
for any other industry or area. However, there are a number of things which
are particularly important. You need to understand the different sectors
and where they are in the cycle. You also need to spend time trying to spot
the next wave of technology and invest in the best of those companies.
Technological
advances occur almost every day. The Internet is one of the most `hot' current
areas. Next year there may be other advances in ways in which we cannot
imagine today. You must aim to catch each wave as it becomes a commercial
reality. It is rare that you will be able to buy a company and sit on it
for five years or more.
What Will Be The Next Wave Of Technology?
Over
the last few years, companies have spent much of their IT budgets on year
2000 issues. The new wave of technology will be the new productivity enhancing
applications such as call centre management, inventory and purchasing management
systems and Web development. As we move into the 21st century, these projects
will take priorityand the pent-up demand is enormous.
What Do You Look For?
First
of all, look for good growth prospects. Concentrate on traditional aspects
such as management, corporate strategies, accounting and cash flow. Boring,
but essential to any good business.
Look
at the products, the customers and the market. It is important to establish
where these products are in their life cycle and if there still remains
a reasonable growth potential. How long will it take before you can recoup
your investment?
What About volatility?
Recently,
volatility appears to have been extremeparticularly in the Internet sector.
Often professionals see buying opportunities during panic volatility. A
broad, well balanced portfolio of early stage and mature technology companies,
diversified globally, helps to spread and thus reduce the risk. But you
still need to monitor performance regularly.
Is Y2K A Negative For Technology Issues?
Clearly,
Y2K has wasted a lot of time with specialists making certain that existing
systems are going to continue working rather than moving on to productivity
boosts. But nevertheless this has also opened up a lot of opportunities.
There has been pressure to delay buying new computer systems until next
year. So sales could dip and cause share prices to fall. Long-term investors
should easily be able to see a buying opportunity.
Y2K
affects companies differently. Telecom and Internet companies are likely
to perform better this year than software and hardware companies.
Has The Internet Bubble Finally Burst?
For
many months now I have been warning of the dangers of buying hyped Internet
stocks with no proven earnings of any significance, and indeed little change
of any real earnings at all. But it is, as with other stock selection, vital
to seek out the companies who are able to produce the right figures and
the right products. Not easy to dobut essential.
Some
stocks are and will remain overvalued. But Amazon.com has interestingly
moved from its premier book retailing business into music, healthcare products,
and recently into Online auctions. AOL now has more U.S. subscribers than
the rest of its competitors put together. These sort of companies appear
to have better long-term prospects than some of the smaller stars.
You
also need to think laterally. Who else is benefiting from the Internet?
Think about those telecom companies that are providing bandwidth, and also
the data storage companies-whose products will be needed as we download
more and more information.
The
concern with Internet stocks is not the obvious growth in the sector, but
the quality of what is on offer.
Technology Is An International Investment Play
Many
technology companies are based in the United States, but there are opportunities
throughout the world. Nokia is based in Europe. But, remember that wherever
a company is based, it probably sells its products globally. Technology
is an international investment opportunity/play.
As
a technology investor you need to have a view on the world and spread your
investments accordingly. For instance, I believe that Japan is starting
down the long road to full recovery, and I find that market more attractive
than some others. But, do not ignore the excellent companies in Europe,
Israel, Taiwan and Canada too. If economic growth is accelerating again,
technology will provide the productivity factor.
Editor's Note: Allen Keyte is editor of the highly-regarded World Affairs
Review, now in its 20th year of publishing, Bramley House, Woolstone,
Cheltenham, Glos GL52 4RG, England, 1 year, 12 issues, $175. Phone, 44 1242
679 100, Fax 44 1242 679 101. World Affairs Review is an international investment
and geo-political newsletter covering international stocks, currencies,
bonds, global markets precious metals, oils and more.
