From MSN:
How Buffett blew it -- The rise of foreign tech stocks
The 'world's greatest investor' passed on two of the hottest investing trends in our time. To help you avoid his mistake, we screen our database for the fastest-growing big-cap tech and telecom stocks in the world.
By Jon D. Markman
You don't need to check Weather.com to know there's a cold breeze blowing in Nebraska this month. Just run a chart on the stock of Omaha-based Berkshire Hathaway (BRK.A), and compare it to the S&P 500 Index ($INX).SuperModels Community
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The contrast is as chilling as it is clear: Shares of the insurance and investment holding company run by one-time investment bellwether Warren Buffett are now slumping so badly that they have, for the first time in memory, underperformed the broad market over a three- and five-year period, a very significant stretch of time.
The gusts of change that have bowled over the man once crowned the "world's greatest investor" are easy to see. First, he missed the importance of technology stocks, declaring them both overvalued and too hard to understand. Second, he missed the importance of foreign stocks, declaring the U.S. market large enough to find ample opportunities. The result: Buffett -- and the value-investing cult that grew up around his firm in the 1980s and 1990s -- managed to ignore two of the most important trends to sweep investing in our time.
All investors should study this gaffe closely, because it is human nature to put too much faith in what has worked extremely well in the past and to pooh-pooh what's working better in the market right now . It's easy for us to smirk at investors who stayed fully invested in slowing, old-growth consumer products companies like Walt Disney (DIS), Coca-Cola (KO) and Gillette (G) at a time that new-growth technology companies were bursting with real value all around the world. But what about five years from now, when companies like Microsoft (MSFT), Intel (INTC) and Yahoo! (YHOO) might seem just as insanely passe? (MSN MoneyCentral is published by Microsoft.)
Get out of the rut
A stock-screening engine like the Investment Finder at MSN MoneyCentral is the secret weapon anyone can use to avoid this psychological trap. For an illustration, let's use it to find the best new ideas among the largest stocks listed in the New York Stock Exchange, Amex and Nasdaq.
I screened the 8,400-stock Investment Finder database last week for the top 100 companies by market capitalization. Then I sorted them by percentage gain for the year to date. The smallest market capitalization on my list turned out to be $40 billion, and the results of the screen were compelling: Of the top 25 names, only four were not technology companies: American Express (AXP), Morgan Stanley Dean Witter (MWD), Citigroup (C) and Amgen (AMGN). And 11 of the top 25, or almost half, are headquartered outside the United States. I think I see a trend.
Breaking the top performers down even further, it becomes clear how important networking and telecommunications has become in this market: Of the top 25 names, 12 are direct plays on telecom, such as No. 1 Qualcomm (QCOM), No. 3 Nortel Networks (NT), No. 9 Nippon Telegraph and Telephone (NTT) and No. 11 Nokia (NOK). Many more, such as No. 4 Sun Microsystems (SUNW), which makes computer servers that are very popular with telephone carriers, are telecom-related.
Meanwhile, if you ignore Sony (SNE), the first consumer-products company in the list comes at No. 44 -- Johnson & Johnson (JNJ). The first pure retail play, Home Depot (HD), weighs in at No. 42. In contrast, the bottom of the list is loaded with old-growth plays: Philip Morris (MO), No. 98 on the list of big-caps, is off 51% for the year; No. 97 Unilever (UN), is off 31%; No. 90 PepsiCo (PEP) is off 17% and No. 85 Disney is off 13%.
Finally, let's look at the internationalization of the big gainers: Of the top 15 names, nine are based outside the United States: Taiwan Semiconductor Manufacturing (TSM), Nortel Networks (NT), China Southern Airlines (ZNH), China Telecom (CHL), Sony, Nippon Telegraph, Nokia, Hitachi (HIT) and Ericsson (ERICY).
While the past performance of these companies is not guaranteed to continue, of course, it's cool to note how cheap some of these foreign tech companies are compared to their U.S. counterparts -- at least on a price-to-sales basis. The fast-growing Canadian telecom-equipment giant Nortel, for instance, trades at a price/sales multiple of 4.84, quite a contrast with its U.S. competitors Cisco Systems (CSCO), which trades at a price/sales multiple of 20.7, or Tellabs (TLAB), which trades at 13.9.
If you're anxious to stay ahead of the curve (and Berkshire Hathaway) next year by adding some big foreign technology names to your portfolio, at least a few of this year's winners are very likely to show up on that list next year as well. Among the best of the bunch, in my opinion, would be Nortel, Sony, Nokia, Ericsson, Hitachi and Deutsche Telekom.
And if you've very cleverly noted that some of these stocks wouldn't have been in this august company last year at this time, here are some of the most interesting foreign tech or telecom names that are in the next flight of 100 by market cap: STMicroelectronics (STM), a French chip company with a $34 billion cap and 201% return year to date; Kyocera (KYO), a Japanese diversified electronics maker, $20.4 billion and 106%; and Mexican telecom powerhouses Telefonos de Mexico (TMX), $26 billion and 101%; and Grupo Televisa (TV), $22 billion and 96%.
Top-Performing Large-Cap Stocks
These big boys have been hot in 1999. Here are the five top-performing stocks with market capitalization of more than $40 billion as of Nov. 19. For a look at the latest list using Investment Finder, click here.
Rank Symbol Company Name Market Capitalization % Price Change YTD
1 QCOM QUALCOMM Incorporated 58,317,971,000 1,302.00
2 TSM Taiwan Semiconductor Manufacturing Company Ltd. 45,958,530,000 229.6
3 NT Nortel Networks Corporation 103,999,293,000 206.8
4 SUNW Sun Microsystems, Inc. 98,889,411,000 195.7
5 ZNH China Southern Airlines Company Ltd. 43,403,125,000 194.7
Changing of the guard
Speaking of big caps, three very interesting switches occurred over the past month at the top of the mega-caps list: Microsoft lost its perch at No. 1 to General Electric (GE); Intel (INTC) lost its role as the second-largest technology company to Cisco Systems (CSCO); and IBM (IBM) lost its role as the fifth-largest technology company to America Online (AOL).
If current trends continue, I would not be surprised to see Cisco top the market capitalization list by the end of next year.
More importantly, it's interesting to note how easily a private investor could have beat the S&P 500 by simply buying, at the start of the year, shares of what were then the top five stocks by market cap: Microsoft, General Electric, Intel, Wal-Mart (WMT) and Exxon (XON). You would have a 29% gain -- about a third better than the broad market -- with a fabulously low standard deviation of 11.9%. Consider that the next time your financial adviser tries to put you in a high-load, underperforming mutual fund.
Here's the current ranking of the top stocks by market cap -- a table that I'll update in my column at the end of the year for those of you interested in following this strategy.
Top 5 Big Caps
Here are the top companies ranked by market capitalization as of Nov. 19.
For a look at the latest list using Investment Finder, click here.
Rank Symbol Company Name Market Capitalization % Price Change YTD
1 GE General Electric 462 billion 38.4
2 MSFT Microsoft 438 billion 22.7
3 CSCO Cisco Systems 279 billion 82.6
4 NTT Nippon Telegraph and Telephone C 268 billion 125.0
5 WMT Wal-Mart Stores 261 billion 44.6
SuperModels
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Recent articles:
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Off to the races
The SuperModels portfolios have been on a tear this quarter, validating my suggestion in October ("Best months to buy stocks are coming right up") that investors resist the temptation to move in and out of the market on the basis of fears about interest rates, overvaluation or Y2K. Here's a quick look at performance:
SuperModels 30: Rebalanced quarterly since Jan. 4, the Investor 30 is comprised of the 10-stock momentum Flare-Out Growth portfolio; the 10-stock blue-chip Redwood Growth portfolio; and the 10-stock dividend-paying Defensive Growth portfolio. As a group, they're up 49.9% for the year through Nov. 18, vs. 16% for the S&P 500 Index. Each portfolio is also beating the market for the year and quarter. By zooming 56% in the fourth quarter through Nov. 18, the Flares are now up 104% for 1999; the Redwoods are up 35.6%; the Defensives are up 16.5%.
YearTrader 10: This group of stocks, rebalanced once a year, follows the yeartrading strategy described in my book "Online Investing." The object was to improve on the Investor 30 concept by owning fewer stocks overall and trading much less often. So far so good; as a group, the 10-stock portfolio is up 66.8% for the year without any trades since Jan. 4. The individual models are each holding their own: The 3 Flares are up 114%; the Redwoods are up 66.6%; the RBI Growth stocks are up 53.5% and the RBI Value stocks are up 33.2%. I'll name the new stocks for the year 2000 portfolio in a column on Jan. 5.
MonthTrader 3: This portfolio is the riskiest and most time consuming, but also potentially the most rewarding. We buy the top three Flare-Out Growth stocks at the start of each month, sell them at the end of the month, and repeat the following month. The strategy gained 20% in October and was up another 25.5% in November through Nov. 18 – giving it a 598% change for the year. December's names will be posted on the portfolio page the morning of Dec. 1.
10,000% Portfolio and PRQs
We're getting closer to naming a 10- to 15-company portfolio of stocks that have the potential to gain 10,000%, or 100 times their current value, by the year 2010. Many of the stocks I've proposed so far have run away from us, though we may put them in the list anyway. ARM Holdings (ARMHY), for one, is now up 119% since mentioned here on Oct. 13. Others, such as Affymetrix (AFFX) and NextLink (NXLK), are flat or up slightly.
I'm still taking nominations, so post your ideas at the 10,000% Gainer Ideas thread in the SuperModels Web Community. Recent ideas posted there include a bunch of satellite companies such as ViaSat (VSAT), Echostar (DISH) and Exigent International (XGNT); and biotechs like SuperGen (SUPG) and Geron (GERN). We need more! Remember, the stock should be relatively small (preferably less than $1 billion market cap) and address a really huge market, and you must explain your idea. Post early and often, the clock is running down.
Finally, the SuperModels community has taken up my Periodic Return Quotient analysis ("Seasonal secrets: Learn the right months to trade any stock") with a vengeance. One member, Paul Wojtkowski, of Waterford, Mich., has extended the idea of finding the right months to the more granular weekly level with a very elegant macro posted at the community's Master Macro List. Unlike the previous macro, you do not need to do any VBA editing; it runs straight from an Excel worksheet. Top names to own in November, according to this analysis, were Verity (VRTY), CMGI (CMGI) and BroadVision (BVSN); so far they've obliged with gains of 42%, 19% and 14%… For December, top PRQ stocks include America Online (AOL), Siebel (SEBL) and CMGI again.
Jon D. Markman is managing editor/investing at MSN MoneyCentral. Of the stocks mentioned in this column, he owns or controls long positions in Microsoft, Intel, Yahoo!, American Express, Citigroup, |
